Congratulations! You've won the lottery. As you'll soon find out, suddenly managing large amounts of money can be quite complicated. After the initial celebration when the numbers match, put your lottery ticket in a safe, secure place after making copies of it. Then, before you show up at the lottery authority to claim your prize, contact an attorney and accountant. You need professional advice about establishing a trust for your jackpot.
In all but a few states, the law prohibits lottery winners from remaining anonymous. If you really win big, every distant relative and casual acquaintance could come crawling out of the woodwork, asking for a loan. If you establish a blind trust to claim the money, no one needs to know about your new-found wealth outside of those you choose to tell. Your attorney will tell you if a blind trust is an option in your state.
Also known as living, or inter vivo, trusts, revocable trusts are often used for estate planning purposes by those of relatively modest net worth, in order to avoid probate. For a lottery winner, a revocable trust means that the winnings placed in the trust do not go through probate at death, as the trust is a separate entity. In standard revocable trusts, the settlor — the trust creator — might use his own Social Security number for the trust, but law professor Gerry Beyer recommends that a lottery winner apply for a separate Employer Identification number to set up a revocable trust.
How It Works
The revocable trust can be set up so you are the settlor, the trustee, and the beneficiary. The trustee manages property in the trust as directed by the trust's terms, while the beneficiary receives the income from trust investments. Because the trust contains your winnings, you probably want to name a financial professional as the trustee, paying that individual or financial institution a fee for management and investment services. If choosing an individual as the trustee, name someone to succeed him if he dies or can no longer perform these duties. If you are married, you might want to name your spouse as a co-beneficiary. The trust terms also include who receives the property in the trust after your death or the death of your spouse.
If you won the lottery along with some co-workers or other individuals, some other sort of entity might be in order, rather than a revocable trust. Depending on the rules of the particular lottery, only one entity may be eligible for the winnings. This may take the form of a general partnership, limited liability corporation, or a revocable or irrevocable trust. Unlike a revocable trust, the terms of an irrevocable trust cannot be changed, which makes sense if there are several parties involved.
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