1. Your odds of winning big are itty bitty. You might not be surprised to learn that you have a better chance of getting elected to Congress than getting rich in the lottery. According to Powerball, the odds of winning a prize are approximately one in 25, but the odds of winning the jackpot are less than one in 292 million. With Mega Millions, the odds are even worse: less than one in 302 million for the jackpot. Still, the lure of a multi-million dollar jackpot is tempting. Who hasn’t fantasized about how they would spend the money? (At least what’s left after paying the taxes.) And so the tickets keep selling.
2. Lottery scams abound.
Unfortunately, you are far more likely to lose to a lottery scammer than to win a jackpot. According to FBI Statistics, over 8,500 victims lost a total of over $61 million to scams involving lotteries, sweepstakes and inheritances in 2020. In these scams, victims are typically approached to win lotteries or draws in which they have never participated. the The Federal Trade Commission warns that victims are told that they must pay money (often fees, taxes, or even customs fees) or provide personal financial information to collect their prize or increase their chances of winning. “If you pay,” says the FTC, “you’ll lose your money and find there’s no price.”
3. Everyone knows who won the lottery (usually).
Information about big lottery winners is frequently made public in many states, so your odds of joining the Rich Anonymous are even lower than winning, period. target of scammers or people seeking alms. You might be surprised at how many “cousins” you have.
Good news for jackpot winners is that new laws are being passed in some states to ensure privacy. According to power ballthe following 16 states (and Puerto Rico) offer winners some degree of anonymity:
- New Jersey
- North Dakota
- Caroline from the south
- West Virginia
- Porto Rico
Some of these states limit protections to people who have won above a certain amount (for example, lottery winners in Arizona must have won at least $100,000 for their identity to be protected, while winners in West Virginia must have earned at least $1 million and donated at least 5% of their earnings to a state fund.)
However, even in states without such laws, some winners have found ways to remain anonymous, such as claiming their prize through a trust or other legal entity, such as a limited liability company. limited (LLC). In these cases, the name of the trust, and sometimes the name of the representative collecting the prize on its behalf, will be released to the public, but not the name of the actual winner – assuming they have obtained good legal advice.
4. Winning the lottery doesn’t have to be a nightmare
You’ve probably heard a lot of stories about people who won the lottery big and died penniless. And to be sure, it happened. Some people’s incredible good luck was later undone, really wrong luck. Also, as mentioned, scammers are everywhere and taxes have to be paid. But a study of National Bureau of Economic Research suggests that overall, people who earn a lot of money are likely to hold on to their wealth for years and be both happier and more financially secure in the long run.
5. Lottery winners need professional (financial) help.
If you beat the crazy odds and hit it big, you should take your time cashing in your ticket until you’re ready. Lotteries give you a few months, and it’s not a bad idea to use at least some of that time to prepare. Take a picture of your ticket stub, put it somewhere safe, and start building your dream finance team. No, your cousin’s brother’s IRS won’t do. If you’ve made some serious money, start by lining up a range of experts in big money management: consider hiring an investment adviser, an estate-planning lawyer, a certified public accountant, and a certified financial planner or private banker. You might even consult an insurance adjuster.
6. Lump sum or annuity?
Jackpot jackpots generally offer the choice of collecting your winnings as a lump sum (minus taxes) or receiving payouts over 20 years or more (30 years for Mega Millions.) There are pros and cons to each . A lump sum, if properly invested, will increase in value. If you are a smart person when it comes to money, the jackpot could increase a lot. An annuity, on the other hand, can protect you against any issues you may have with self-control. Even if you waste all the money you receive one year, you will receive more the next year. Unless you sell your future payments at a discount or get a loan against them (don’t), the funds will keep rolling as long as the annuity continues. But if you die before your payments are complete, a lottery annuity could create tax problems for your heirs; they may be required to pay inheritance tax on your remaining winnings. One way or another, they’ll get through this. There are worse problems to be had than figuring out how to pay taxes on an inherited windfall.
7. Give, but be a smart giver.
Remember how we said news of your good fortune would likely lead to a potentially overwhelming number of inquiries? It’s tempting to hand out wads of cash, but this kind of charity can wreak havoc on relationships and your bank account. At the same time, hoarding your big win like Scrooge McDuck might also not be good in the long run. Creating a family trust or foundation can simplify the donation process. Your advisors can help you set up tax-smart gifting of assets.