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In Your Dreams: Winning Big in the Lottery

Congradulating man"Here's how to make a windfall of cash last a lifetime."

It seems like just about everyone had lotto fever recently, thanks to the first billion dollar jackpot. However, for most of us, those lottery dreams will remain just that: dreams.

You know that it's a long, long, long, long shot for you to win the lottery. The Multi-State Lottery Association reports that the odds of hitting the jackpot are one in 292.2 million. Add another "long" to that shot. Even so, we can dream, right?

US New & World Report's recent article "Lottery Winner or Not, Have a Windfall Plan," says let's have fun with the fantasy that your purchase of a $2 lotto ticket will make you a billionaire by discussing a lottery game plan:

Lottery Game Plan

  1. Sign your ticket (after making sure your state allows it).
  2. Place the signed ticket in a safe deposit box.
  3. See if your state allows you to claim the prize money anonymously (DE, KS, MD, ND, OH, or SC).
  4. Don't claim the prize immediately. You need to get yourself organized with an attorney, a CPA, and a financial planner.
  5. Prepare to handle family requests and preemptively let those family members know how this will work.
  6. Execute your lottery game plan.

It is fun to daydream about lottery winnings, no matter how great the odds.

It's also a good exercise to have a plan in place for how you would handle a financial windfall of any kind. There are, after all, many other ways to receive a big chunk of cash. For example you might receive an inheritance, life insurance proceeds, an insurance settlement, or funds from selling a business or real estate. Even if you never play the lottery and have no real need for that game plan, you still need to know how to deal with more realistic situations. Here are some suggestions:

Create breathing room. Getting an unexpected lump sum is exciting. We can't help but start to dream of the possibilities. But it's best to step back, take a deep breath, and try to avoid making any impulsive decisions.

Figure out your taxes. As you might expect, some windfalls will have a tax impact, and those implications will vary based on the type of asset.

Inventory your desires. That sounds serious! Yes, make a wish list of everything you want to have and do, including education goals, vacations, cars, and homes. When you have it set, put that list away for 30 days to give you a little time to settle down. At that point, common sense and rationale thought may have a better chance of entering into the decision-making process.

Create a debt plan. Pay off your credit cards ASAP. Organize your remaining debt, including mortgages, student loans and auto loans to create a long-term debt plan.

Take five. Spend no more than 5% of the windfall on wish list items in the first six months. There's no reason to hurry with major financial purchases—you've done ok without them, now just wait a little while longer. Keep your impulses and emotions in check and take some time to make wise purchases.

Replenish the reserves. Make sure the windfall will, at the very least, let you build up your emergency cash fund. Set aside enough money to cover living expenses for six to 12 months.

"Snap out of it!" As Cher said to Nicholas Cage in Moonstruck. Each of us will experience a big psychological impact when we receive a financial windfall—the adjustment time will vary. To help address this, take a break from decision making and allow as much time as possible before making major decisions about money or life.

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 money. Consider hiring a fee-only financial planner, an accountant and an estate planning attorney.

It's fun to daydream about what you might do with a lottery jackpot. But it's even more fun to have a well-thought-out plan in order to be prepared if and when an unexpected financial gain comes your way.

Reference: US New & World Report (January 15, 2016) "Lottery Winner or Not, Have a Windfall Plan"

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Not Having Children Does Not Mean You Do Not Need an Estate Plan

Bigstock-Perfect-Couple-88317566If you do not have any children, you might not think that you need to bother with having an estate plan. However, having an estate plan is often even more important for people without children than for people with children.

A common myth exists that the purpose of estate planning is to provide a way for a person's children to receive their inheritances. From this it follows that people who do not have children do not need to have an estate plan. Nothing could be further from the truth. Providing an inheritance for children is only one purpose of an estate plan, not the sole purpose or even the most important purpose.

As U.S. News & World Report points out in, "No Kids? You Still Need an Estate Plan," people without children need, at the very least, to have a will if they want to have a say in who gets their assets after they pass away.

People who pass away without a will are said to have died intestate. Every state has a law that determines who gets the assets of people who die intestate. The laws all operate similarly, in that the assets are given to the person's closest living relatives.

Under such law, those who have a spouse or children will have their assets given to that spouse or the children. If however you have no spouse or children, then your assets will be distributed to other relatives, depending on who is closest in line. Ultimately, if you have no living relatives that can be found, then the assets will be claimed by the government. The term for this is escheat.

So, the primary purpose of estate planning for most people is avoiding the laws of intestacy and deciding for yourself who will inherit from you.

Do not let the fact that you do not have children deter you from getting an estate plan. Contact a qualified estate planning attorney to help you design a custom plan for your unique circumstances.

For more information about estate planning, please visit my estate planning website.

Reference: U.S. News & World Report (October 14, 2015) "No Kids? You Still Need an Estate Plan"

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Keeping Trusts a Secret

Bigstock-Girl-Hand-With-Silence-Sign--106308902Sometimes it might be beneficial for a trust beneficiary to not know the details of a trust or even know that the trust exists. Some states do make that possible.

A major concern for wealthy people is that their heirs will not establish their own professional lives or even go to school. Instead, the heirs might rely on their inheritances and not be motivated to establish themselves.

One way to help avoid this is to create a trust that does not give anything to the beneficiaries until they reach an age where they will have settled into their adult lives. However, there still might be a fear that if a beneficiary knows that a large inheritance is eventually coming through the trust, they will not be as motivated to earn their own money as they otherwise would be.

A recent article by Financial Planning, "How Silent Trusts Can Help Your Clients," discusses a type of trust that can be used to keep beneficiaries in the dark about their trusts.

The basic idea is that in a "silent trust," the terms of the trust prohibit the trustee from telling the beneficiaries about the trust or the assets in the trust. You should know that these trusts are legally controversial and are not allowed in all states.

Some states mandate that the trust beneficiaries must be told about the trust upon reaching a certain age. Delaware, however, is one state that does allow silent trusts in almost all circumstances.

If you are interested in such a trust, then contact an experienced estate planning attorney to explore your options.

For more information about estate planning, please visit my estate planning website.

Reference: Financial Planning (October 16, 2015) "How Silent Trusts Can Help Your Clients"

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