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.
More on AAII.com
- 18 Recommendations for Minimizing Inheritance Conflict – Regardless of whether or not you receive a sudden windfall of wealth, proper estate planning can prevent disputes and leave a lasting legacy of love.
- Lump Sum of Annuity: Which Should You Choose at Retirement? – Annuities defend against long life spans, but other sources of income can make lump sums more attractive.
- What Was the Biggest Lesson You Learned From Managing Your Own Wealth? – See how members responded on the AAII.com Discussion Boards.
Not an AAII member? Join today
AAII Sentiment Survey
Optimism fell to its lowest level in nearly 11 years as the market got off to a rough start in 2016. More about this week’s results.
What’s Trending on AAII
- The Changes to Social Security Claiming Strategies
- A Satirical Take on Financial Terminology
- A Comprehensive Approach to Covered Call Writing
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.
The AAII.com website is a treasure trove of investment knowledge and tools that are all geared toward making you a smarter and more profitable investor. The site offers a full archive of AAII Journal articles, our library of stock screens, investor classrooms, discussion boards, investment guides and topical areas covering investing basics, stocks, mutual funds, bonds, research and much more.
One of the many invaluable sections of AAII.com is the Stock Screens area. Here, members may quickly tap into the investment philosophies of popular professional investors as well as to see the resulting stock picks.
Here’s a quick peek at some of our more popular screens and their impressive 2015 returns (through 11/30/2015): Foolish Small Cap 8 up 49.5%… O’Neil’s CAN SLIM Revised 3rd Edition up 36.6%… Foolish Small Cap 8 Revised up 30.6%… Graham—Enterprising Investor up 19.7… Stock Market Winners up 19.1%…