So You Won the Lottery

By Ben Hamill - August 10 2015
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Lottery Ticket

So you won the lottery? What does that mean to your life? Most wins involve $50 to $100. Some lottery players get lucky and win a few hundred dollars and sometime the stakes go higher with payouts of a few thousand dollars. But what happens if you Win The Lottery? How do you navigate the excitement and life-changing payouts that come with wins of millions of dollars?

It’s true, the chances of winning the ultimate lottery prize aren’t great — for instance, in Canada’s 6/49 Lotto, your chances of hitting all six numbers are one in 13,983,816. But it’s clear that SOMEONE wins and you probably play because, you figure, it might as well be you!

So while you’re dreaming about what you might do with $50 million or so, consider what experts tell us about how you can allow your win to enhance your life and not let the win drown you.

What Do the Experts Say?

Ever since the lottery was legalized, winners have spoken out about the impact that the win had on their lives. In some cases the winners were able to deflect moochers and maintain a semblance of normality. In other instances, however, what should have been a life-changing experience for the good turned into a nightmare. Some winners tried to hoard their lottery earnings while others couldn’t stop spending. Families broke up, friendships ended and some winners even gave the whole prize away so that they wouldn’t have to deal with the animosity that came with becoming a new millionaire.

How to Cope?

Lottery officials have seen it all and they have a number of suggestions for new winners. Canadian winners agree, when they sign their ticket, to identify themselves and participate in lottery promotions, so it’s not possible to collect anonymously. But winners who keep their heads about them can navigate through the chaos that follows a win and learn to enjoy their earnings.

Some suggestions from former winners, lottery officials and psychologists:

  1. Sign the back of your ticket. Whoever presents the ticket with his/her signature and a photo ID can claim the prize. So secure your ticket immediately by signing it.
  2. Stay calm and don’t feel that you have to say yes to everybody. You’ll start hearing from family members who haven’t been in touch for years, old friends and even from people who call you out of the blue. It’s not rude to put those calls on the back burner as you get your new finances in order.
  3. Think conservative. It’s fun to think about buying a yacht, or traveling around the world but in the long run, you’ll get more satisfaction out of your win if you put your money into your kids’ education (or your own!) or pay off your mortgage.
  4. Speak to an accountant BEFORE you collect your win. This individual can advise you about whether you’re better off taking the prize money all at once or having it paid out over the years in the form of an annuity. In Canada, proceeds from lottery wins are tax-free but if you choose to draw the money in monthly payments, the interest portion on those payments is taxable. Protect your money by choosing the best draw strategy. Compare the effective yield of what you could earn by taking the money as a lump sum with the annuity option. If you take the lump sum you might wish to invest the proceeds. If you choose the annuity you might be denying things that you want to buy or do. Ask an accountant to help you crunch the numbers so that you can decide which type of payment suits you best.
  5. Don’t run to change your lifestyle. Don’t do anything drastic. If you like your job, continue to work — if you quit you might isolate yourself. Set aside a fixed amount to use to splurge on yourself but save the big purchases for later, when things have calmed down and you’re able to make those decisions in a more rational and moderated atmosphere.
  6. Pay off your debts. There’s no reason to continue to pay interest on a loan or other debts when you can pay the debt off and use that money for bigger and better things.
  7. Pick a lawyer, account and investment advisor. These must be people who can work together. Take recommendations but check out these professionals yourself. Ask each to do a small job for you to see how you like working with them. If you get a good team together, you can maximize your win with good investments and a sound financial strategy.
  8. Invest carefully.Start out by putting the money in safe, short-term investments. Don’t touch it for the first six months. During this time your team can start to put together an investment portfolio. It’s suggested that you divide your investments 50-50 between equities/stocks and fixed income such as bonds.
  9. Plan a budget to discipline yourself so that you preserve your winnings. One suggestion is to spend the income, not the principal. Investment professionals note that it takes a lot of principal to generate income. Once you spend the principal, it can and will dissipate quickly.
  10. Be careful that you don’t lose your assets to creditors. Lottery winners become targets for ex-spouses, ex-friends, ex-coworkers and just about anyone who thinks that they can get ahold of some of the money. The financial advisory team can assist you with this via protection strategies. Some options may involve creating trusts, family limited partnerships or limited liability companies but there are other alternatives as well. This is why it’s so important to have a financial advisory team in place when your lottery payments start coming in.
  11. Plan charitable gifts.Charitable deductions to a tax-exempt non-profit can help offset your income for tax purposes. Studies show that giving to charity is one of the top dreams for many lottery winners but it’s important to give wisely.
  12. Review your estate plan.An estate plan allows you to share some of your winnings with family and friends in a way that protects them and you.
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