With Mega Millions 540+ million dollar jackpot up for grabs, many people are daydreaming about how to spend the money. But doing it the right way (protecting your riches, your identity and your sanity) takes some thought and planning.
Making sure you don't blow the nation's largest-ever lottery jackpot in just a couple of years means some advice is in order before the Mega Millions drawing Friday, especially if you are the lucky one to match the numbers.
#1. First and foremost sign the back of the ticket. That will stop anyone else from claiming your riches if you happen to drop it while you're jumping up and down. Then make a photocopy and lock it in a safe. At the very least, keep it where you know it's protected.
#2. Catch your breath and calculate your next few moves. Don't do anything you'll regret for the next 30 years, like calling your best friend or every one of your aunts, uncles and cousins. They'll find out soon enough and it doesn't take long to be overwhelmed by long-lost friends, charities and churches wanting to share your good fortune.
#3. After the nervous ride to the lottery office and having it verified the next step is to contact your lawyer. A financial planner would be a lot wiser than updating your Facebook status. Make sure it's someone you can trust and, it's hoped, dealt with before. If you don't have anyone in mind, ask a close family member or friend. Oklahoma City attorney Richard Craig, whose firm has represented a handful of lottery winners, says it's essential to assemble a team of financial managers, tax experts, accountants and bankers.
#4. Change your cell phone numbers and your e-mail address. It wouldn't be a bad idea to leave town for a few weeks until things settle down.
Here are some answers to some standard questions:
Q: How much will I pay in taxes?
A: This partly depends on where you live. Federal tax is 25 percent; then there's your state income tax. In Ohio, for example, that's another 6 percent. And you might need to pay a city tax depending on the local tax rules. So count on about a third of your winnings going to the government.
Q: Should I take the cash payout or annual payments?
A: This is the big question, and most people think taking the lump sum is the smart move. That's not always the case. Spreading the payments out protects you from becoming the latest lottery winner who's lost all their money. Nine out of ten winners go through their money in five years or less. Ultimately it is your choice; but, unless you are in your eighties take the annuities.
Although if invested properly, the lump sum option can be a good choice. There's more planning that you can use to reduce estate taxes and other financial incentives. Others, though, say that with annual payments, you are taxed on the money only as it comes in, so that will put you in a lower tax bracket rather than taking a big hit on getting a lump sum. And you still can shelter the money in tax-free investments and take advantage of tax law changes over the years.
Q: Should I keep it to myself and not tell anybody?
A: Absolutely. This will protect you from people who want you to invest in their business scheme or those who need cash in an emergency. Lottery winners are besieged by dozens of people and charities looking for help. There are people that scam and manipulate lottery winners for a living. Unless you understand that, you can become a victim very quickly.
Q: So how can I protect myself?
A: Again, it somewhat depends on where you live. In Ohio, you can form a trust to manage the money and keep your winnings a secret. In other states, you can form a trust but still be discovered through public records. And a few states require you to show up and receive your oversized check in front of a bunch of cameras, making it impossible to stay anonymous.
Q: Is it OK to splurge a little?
A: Sure, it's why you bought a ticket, right? Get it out of your system, but don't go overboard, remember that if there's a new Mercedes-Benz in the driveway, your neighbors will probably be able to figure out who won the jackpot.
Q: How much should I help my family and others?
A: It's certainly a natural desire to help relatives in need and take care of future generations. But use extreme caution when giving out your money. Jack Whittaker, a West Virginia contractor who won a nearly $315 million Powerball jackpot in 2002, quickly fell victim to scandals, lawsuits and personal setbacks. His foundation spent $23 million building two churches, and he's been involved in hundreds of legal actions. "If you win, just don't give any money away, because the more money you give away, the more they want you to give. And once you start giving it away, everybody will label you an easy touch and be right there after you. And that includes everybody," Whittaker said five years ago.