You won the jackpot in South Carolina you fortunate bastard. Now what?
Winning the lottery has always been a fantasy and you actually did it! Congrats or something. The most important thing to happen in your life just happened and you can't say a word. And so the irony of winning the lottery begins.
Add me to the list of folks who played and lost; but hey, I got to dream for a few days! Lucky for me (and for you) I'm in the financial industry and I did a lot of "research" over the past couple weeks to underscore and add to what I already knew as a CERTIFIED FINANCIAL PLANNER™ professional.
First off, do nothing different. Keep going to work if you work; you can make it until Saturday. South Carolina is one of only 6 states that allow you to stay anonymous and my lucky friend - yes, I'd like to be your friend - you're going to stay anonymous OK? As you might already know, the $1.6 billion prize was actually $1.537 billion but who's counting you might ask? You are. From here on out, you count your money because keeping track of what you have, what you owe, what you spend and what you make is the key to maintaining wealth.
Your prize will be reduced to $878 million assuming you take the cash option; which most people do. South Carolina's top income tax rate is 7% beginning at anything over $14,650 so for all intents and purposes, you can reduce your millions by about 7% or $61,460,000 ($878,000,000 x .07). And the IRS prefers not to wait until April 15th to get their cut so they will also want a 25% chunk just in case you skip town. That amounts to a whopping $219,500,000. So when people run around saying you won a billion dollars, you will know that you really won $597,040,000 or about a half a billion. Don't bother making that point to them. It's still more money than Taylor Swift and Kim Kardashian have earned over their short but profitable careers (combined). You may not be worth more than Kim's half sister, Kylie Jenner, but you might have more in cash (and you won't have to have ever used Instagram to get it).
OK, so what to actually do with a half a billion dollars? First recognize that the IRS's 25% tax will not likely be all you owe them on that money come April 2019. Whether you are single or married, the IRS will tax the top tax rate of 37% on any amount over $500,000 or $600,000 respectively. Let's assume your married and ignore whatever income you made at the job you used to have. $878 million less $600,000 = $877,400,000. That amount multiplied by 37% equals $324,638,000. You will have already paid $219,500,000 when you got the prize but you will still owe $105,138,000!!! So guess what is the first thing you have to do? Tax planning. Actually that's the fourth thing you need to do.
Here's my list:
- Sign your ticket. Lotto tickets are "bearer" instruments so whoever signs it first gets the money
- Bond with your ticket. Take a picture and/or a video (don't share it) for additional proof that it's yours
- Protect your ticket. Put it in ziplock back, then an envelope, then somewhere it won't be lost or stolen
- Do some tax planning. You unfortunately will need to sit with a CPA before the end of the year
- Do some legal planning. You unfortunately will need to sit with an estate attorney before 2019
- Do some charitable planning. With the CPA and lawyer discuss working with a Community Foundation
NOTE: Signing your ticket is not the advice I would give to anyone not living in one of the 6 states that allow anonymity. In fact, just to be sure, none of this is advice because I don't know your personal situation (disclaimer). But if it were me and I bought a ticket in South Carolina, from what I've read, you can sign and they won't tell. That said, if the lawyer you speak with says there's another way to claim without using your name, listen to your lawyer.
I don't need to list that you should buy something nice for yourself do I? OK, good I won't. I mean the truth is, you are eventually going to buy some impressive stuff but when you do, your life will begin to change. Unless you really go nuts, you won't be able to spend all of this money in your lifetime. It becomes a little bit like Netflix, YouTube or Amazon Prime -more television than you can consume in a lifetime, so don't try. I mentioned charitable giving and the "community foundation" because in case you would like to help fellow South Carolinians, I have found community foundations to do great work. I know the one here in Virginia will allow you to make a huge donation before the end of the year - hello, tax savings! - claim your deduction and decide later where the actually money will go. So for example, if you want to give to churches or the school system but you're not sure how much, you can work with an organization like a community foundation to make the deduction in 2018 but then pay it out to the organizations in 2019. Talk to your new CPA friend about this.
I titled this post calling you a "fortunate bastard." I don't know how fortunate you've been in your life and I don't know whether this win will bring you additional good luck or the bad luck everyone talks about. I do know this: many "smart" people say playing the lottery is a waste of money, a horrible investment and a tax on stupid people. No matter how much money you've spent on lotto tickets in the past, you've just proved them all wrong. I envy you.. and I don't. You will have new challenges including what to do with "all of the money in the world" and reexamining your life's purpose now that you are definitely rich. People will laugh at those "problems" but for you, they will be real.
Missing from my list is "do some financial planning." After you see the lawyer and the accountant you will want to see a financial planner but you can't meet the kind you need at a networking event. Normally I would recommend a prospective client read my False Equivalency of Financial Advice article to get some perspective about the different kinds of financial advisers. But the "fee-only fiduciary financial planners" (like me) that I normally recommend won't be that great for you either; unless they're willing to partner with others to help you create a "Family Office." Of course I do just happen to have some colleagues who could help me help you. Just give me a call! I would share those names here but I plan to "partner" with them privately too after I win the Powerball tonight (Estimated Jackpot: $620 million).
Hey, congrats again.
PS. This article is a good read too: What to Do if You Win the Lottery
Jason Howell is a CERTIFIED FINANCIAL PLANNER™ professional and former U.S. Congressional candidate who became a financial planner out of concern for the economic future of Generation X. He is President of Jason Howell Company: an independent, fiduciary, wealth management firm that specializes in planning for the long term financial health of Gen X parents and their children.
To engage Jason Howell Company you can get on his phone call schedule here: Phone Call Schedule