The jackpot for Saturday’s Powerball drawing has surged to a new record breaking $600 million. Tickets are selling at a rate of 6,000 per minute, as all of America is looking to get real rich, real quick – the American Dream, right? For $2 per ticket, that $600 million could be yours. Test your luck … your 1 in 175,000,000 luck.
We have all had that conversation: “what would you do if you won the lottery?” A man’s answer is usually summed up with a short description of the loud-yellow sports car that will be titled in their name as soon as the Lottery Commission strokes the check. The ladies are more prone to express a story of traveling the world, and using the money to live their own version of “Eat, Pray, Love” meets “Sex & The City” (aka eating aesthetically pleasing foods in Italy with a closet full of Chanel & Christian Louboutins).
While winning the lottery is a game of lady luck; getting that $600 million to last beyond the first year of lavish luxury is no such thing. Research shows that winning the lottery could make you more likely to go bankrupt.
You have all heard the stories, like Callie Rogers who blew through her $3 million in winnings on shopping (think closet full of Chanel & Louboutins), and a breast augmentation. Let’s not forget the lucky son-of-a-gun, William Post, who spent his lottery fortune of $16 million on homes, cars (think obscene/obnoxious/yellow sports car), and bad business investments before he was locked up for shooting at creditors with his shotgun. So the tides have turned, and the “lucky ones” aren’t looking so lucky. But who needs luck in South Florida when there is Estate Planning?
Here are a few concerns & suggestions to avoid the unlucky misfortunes of the luckiest of them all:
- Income taxes – we are all fully aware, income taxes are never a game of luck. As Spiderman’s Gramps said, “with great power, comes great responsibility.” Let me clarify, “with mega-millions comes mega-taxes.” Lottery winnings are taxable income when they are received. The lottery winner can choose between a lump sum payment or yearly installments. Therefore, if the lottery winner elects to take a lump sum payment, the entire amount is reported as income that very year. On the other hand, a winner who receives yearly payments only reports the amount received that year. Of course, the yearly installment sounds desirable for income tax purposes; however, for estate tax purposes, the lump sum arrangement will prevent the lottery winner’s descendants from assuming a potentially large tax obligation. If you decide on a lump sum deal, but like the idea of installments, you can create a trust as the winner of the prize, and set up your own method of annual payments.
- Gift Tax – so you’ve won $600 million, and you naturally want to buy your Momma a new house, and your Pops a new truck, and maybe even a trip around the world for your friends. No special treatment for lottery winners, the same gift tax rules apply. You can make tax-free gifts to any number of individuals as long as the total amount given to each beneficiary (each year) does not exceed the annual exclusion amount, which is $14 thousand for the year 2013. Anything beyond that amount is subject to gift tax.
- Estate Tax – the lottery winner’s estate may be subject to estate taxes upon death. There is currently an exemption of $5,250,000 that is not subject to estate taxes. By planning ahead, the “lucky,” yet wise, lottery winner can use estate planning strategies to avoid leaving too much in their gross estate (aka, more taxes). By using estate planning techniques, you can achieve transfer-tax-free wealth depletion, flexibility, limited taxes for your descendants, asset protection, and control over asset distribution.
The moral of this story:
- If you are just “lucky,” you will likely end up as a maid or in jail for shooting at creditors (like our friends mentioned above).
- If you are lucky and smart, you will hire an estate planning attorney, and blissfully live out your days of lavish-luxury in peace.
For more information on successful Florida estate planning and business succession planning, please contact the South Florida law firm of Wild Felice & Partners, P.A. at 954-944-2855 to schedule your free consultation.
It’s a Wild world. Are you protected?SM