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What to Do If You Win the Lottery

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Investor-Update

Winning the lottery or otherwise suddenly coming into a large sum of money creates a set of challenges from a financial and estate planning standpoint. While it’s a problem many of us would like to have, it is a challenge nonetheless. Just one or two improper decisions at the outset can have unwanted ramifications in the future.

I’m going to focus on the lottery, given this week’s $1.5 billion Powerball jackpot, but most of the guidelines apply to any situation where a large, sudden windfall of money is involved. Even you are not so fortunate, the suggestions below may help you better manage the wealth you have been able to build through savings and hard work.

Give Thought to Whom the Winnings Will be Distributed: Ownership has tax implications for the primary recipient and anyone the recipient wants to share the wealth with. Lottery tickets are presumed to be owned by the buyer. Depending on an individual state’s law, the buyer’s spouse may be legally considered to have joint ownership. Inheritance can be treated in the same manner, as can proceeds from the sale of a business or employee stock options. Gifts are generally taxable based on their prevailing value: A Powerball ticket gifted before the drawing has a value of $2, whereas a winning ticket is worth the amount won.

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The Week Ahead

There are currently 45 S&P 500 companies scheduled to report earnings next week, mostly mega-caps. Included in this group are Dow components International Business Machines (IBM) and UnitedHealth Group (UNH) on Tuesday; Goldman Sachs Group (GS) on Wednesday; American Express Company (AXP), Travelers Companies (TRV) and Verizon Communications (VZ) on Thursday; and General Electric (GE) on Friday.

The U.S. financial markets will be closed on Monday in observance of Martin Luther King, Jr. Day.

The first economic report of note will be the National Association of Home Builder’s January housing market index, released on Tuesday. Wednesday will feature the December Consumer Price Index and December housing starts and building permits. The January Philadelphia Federal Reserve survey will be released on Thursday. Friday will feature the January PMI manufacturing index flash and January existing home sales.

The Treasury Department will auction $15 billion of 10-year inflation-adjusted securities (TIPS) on Thursday.

January stock options will expire on Friday.

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