$550 million is on the line for the upcoming Powerball jackpot. While having such a fortune dropped into your lap may seem like a dream come true, such a prize comes with great responsibility. In order to best handle this new fortune (and to not fall victim to it), you should focus on what to do or not to do right away!

First, resist the urge to call all your friends with the news. Contact your attorney before anything else to discuss the following:

  • Protect your assets from potential creditors
    • Now that you are worth millions, you could be subject to new lawsuits on potentially fabricated grounds costing you thousands in litigation expenses. Those you think are your friends may not be. Also, tread carefully so a spouse is not given cause to disrupt the current family dynamic, such as filing for divorce. Creating a trust to hold the lotto winnings can provide “divorce-proofing” features.
  • Create an estate plan
    • Ensure that your heirs and those you intended to benefit will be the persons who will enjoy your wealth after you pass (and during your lifetime); also don’t let your new estate end up in probate.
    • If you have an existing estate plan – update it to reflect your newfound wealth.
  • Consider claiming the lottery ticket in a trust or LLC to preserve anonymity
    • If you set up a trust or LLC to claim the winning ticket, your anonymity will be preserved because it will be the trust/LLC and not you that will appear on public records as having won.
    • You may need to place the ticket in the trust before you win. This can also avoid a huge estate or gift tax hit you!
  • Tax planning
    • Avoid paying almost half of your winnings in taxes by implementing creative tax planning strategies.
    • Meet with an attorney to explore how to minimize income taxes by maximizing deductions or creating a tax-exempt organization. Additionally, an attorney will work with you to consider ways to avoid inheritance and generation skipping transfer taxes, and to determine the best way to go about “gifting” money to loved ones.
  • Assess consequences of whether to accept winnings as lump sum or installments
    • Assess the tax consequences of accepting winnings as a lump sum versus installments and which option would be best for your specific scenario.
    • This may sound like a simple choice, but the ramifications are complex.
    • Lump sum: you owe income tax on the amount in full, immediately. You also need to manage your money on a scale with which you likely aren’t familiar. However, if you plan wisely and seek legal, financial, and tax advice, you can avoid many of the common pitfalls of winning the lottery.
    • Installments: Each payment will be taxed individually. With this option, you won’t have to worry about managing a large fortune. If you pass away before the annuity period is up, however, your family will have to pay the estate tax on their inheritance – a large amount that they likely do not have on hand. Additionally, this option can ultimately impact the total amount of money you bring home.
  • Grow your winnings by investing wisely
    • A large amount of lottery winners eventually go broke, usually by investing poorly or involving bad business partners. Meet with an experienced financial planner to assess what investments are worthwhile and which are a scam and to determine the right amount of money to invest.