Well, that really, really, really, really big lottery has come and gone.
By your question, I am assuming you did not win, right?
It seems like just about everyone had lotto fever recently, thanks to the first billion (with a "b") dollar jackpot.
For most folks, like you, lottery dreams will remain just that: dreams.
Naturally, you know that it is a long, long, long, long shot for you to win the lottery in the first place.
In fact, according to the Multi-State Lottery Association, the odds of hitting the jackpot are one in 292.2 million.
But, what if you had won?
What would be your next move as you looked at the winning ticket in your hand ... in stunned disbelief?
For some thoughtful guidance, we turn to a recent article in US New & World Report titled "Lottery Winner or Not, Have a Windfall Plan."
You will want to read (and, perhaps, bookmark) the original article, but here is a quick checklist of that guidance:
- Sign your ticket (after making sure your state allows it).
- Place the signed ticket in a safe deposit box.
- See if your state allows you to claim the prize money anonymously (DE, KS, MD, ND, OH, or SC).
- Do not claim the prize immediately. You need to get yourself organized with an attorney, a CPA, and a financial planner.
- Prepare to handle family requests and preemptively let those family members know how this will work.
- Execute your lottery game plan.
Lottery winnings aside, you may be blessed with a more realistic financial windfall.
For example, in the context of estate planning you may receive an inheritance.
While that inheritance could arrive in the form of real estate, life insurance proceeds, investments, a business, artwork or retirement funds, you must have a game plan.
So, even if you never play the lottery, you still need to be prepared should a more realistic windfall find you.
Here is some guidance:
Create breathing room.
Do not let the windfall get you overly excited. Figuratively (and literally) take a deep breath and try to avoid making any impulsive decisions.
Consider your taxes.
As you might expect, some windfalls will have a tax impact. The exact tax implications will vary depending on a given type of asset. For example, just "cash out" an inherited IRA to see what I mean.
Inventory your desires.
Yes, make a wish list of everything you want to have and do with the windfall. These may include education goals, vacations, cars, and homes.
Once that list is completely, put it away for 30 days and let the initial adrenaline rush subside.
This will give common sense and rational thought a better opportunity to enter your decision-making process.
Create a debt plan.
Pay off any credit cards ASAP! Then, organize your remaining debt, including mortgages, student loans and auto loans to create a long-term debt plan.
Spend no more than 5% of the windfall on those wish list items in the first six months.
Likely you will find that 30-day break from your wish list will have diminished the importance of many items.
If there are some major financial purchases on your list, like the new "McMansion" or the Bentley, remember that you have lived just fine without them to this point.
Keep your impulses and emotions in check and take time to make wise purchases.
Replenish your reserves.
Build up your emergency cash fund. Set aside enough money to cover living expenses for six to 12 months.
Organize a financial team.
Begin by educating yourself on sudden wealth and investing.
The more you learn, the better your odds for a successful relationship with your windfall.
Regardless whether you won the lottery or received an inheritance, you would want them to "bless" and not "curse" you and your loved ones.
To vastly improve the odds of blessing you and others, consider hiring a fee-only financial planner, an accountant and an estate planning attorney.
The odds of winning a lottery are exponentially remote, but sound stewardship over your resources is essential whether the net worth on your balance sheet is modest or massive.
[As for me, I believe God owns everything. Consequently, I am merely a steward over what I have been given for a very short time indeed. One day I will be called to give an accounting for my stewardship. What do you believe?]
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: US New & World Report (January 15, 2016) "Lottery Winner or Not, Have a Windfall Plan"