Everybody who has ever played a big jackpot lottery has shared a single dream. “Win the big bucks, be financially secure, forever! and live your best life for the rest of your days”, right?
So what would you do if you actually did win millions if not billions of £’s?
One could only assume that any money trouble you have/ or had, would simply evaporate? You would no longer have a vocabulary that included the likes of savvy, frugal, economical, sparingly, thrifty, abstention, restraint, and money-smart ever again.
Instead, these would be replaced with antonyms such as luxurious, opulent, sumptuous, Babylonian, palatial, extravagant, ostentatious, and salubrious
This is sadly untrue.
Like a piece of carrion on the Serengeti, the vultures will descend on you and your new-found wealth, tearing strips of it. This could be in the form of well-wishing charities asking for donations, transient people that you have had no contact with for years suddenly coming out of the woodwork with their hands out. Even distant family, demanding that you help them out financially and of course fraudsters. “Thieves and Forgers rush in where big spenders dare to tread” and the bigger the honey pot the more wasps you attract.
It also sounds a bit “Oceans 11” but the more wealth you have the more sophisticated the Fraudsters and thieves will be in order to try and dupe you.
Despite the vultures though, the biggest threat to your newfound wealth is….well you!
It is a sad but staggering fact that 70% of lottery winners end up losing it all. This can happen for a number of reasons. Bad investments, bad financial advice, downright stupidity, or just by being completely frivolous.
You might argue that the latter is at least fun. But I can imagine that when you have to go and beg your old boss for your job back. After you defecated in his office draw, said a large number of profanities on your way out whilst telling him that the next time you see him you’ll be sat at the lights flipping him off in a Lambo, it’s going to be a dark day.
I’d say that is questionable as to what level of winnings this 70% is inclusive of? Some might say that it is forgivable for someone to win £10,000 and blow it, but to do the same with £10 million is unthinkable. Regardless the stat is clearly inclusive of the people who have done such a thing. We all remember the lotto lout Michael Carrol. Additionally, if you blow it in that fashion you are likely to attract unwanted media attention. We all know how much the British media love to document a fall from grace. It makes for much more gripping reading than a lottery winner who had ROI’s of 30% in 4years of scooping a notable win.
In terms of stupidity, I think the case of Jack Whittaker typifies it. I have to be careful what I say about this guy as he clearly has a lot more money than me and could sue me for slander. But he’s an idiot! Jack decided to leave $545,000, in a suitcase on the back seat of his car. I think you can guess the rest of the story. You are probably wondering why anyone in their right mind would do this? Upon being quizzed about it he simply replied, “because I can.” It’s a fair point.
To make matters worse, Jack clearly didn’t learn his lesson. As, less than a year after the robbery, thieves targeted his car again. This time they had to settle for a meager $200,000. How rude of him not to leave more!
He did win $314 million though.
It has even been documented in the past of lottery winners being killed for their wealth, like Craigory Burch Jr. who won $434,272 and was tragically killed by armed robbers less than two months after his win.
So … this is the time (more than ever) that you would need to get money smart. All of sudden your thoughts should have changed from the polar opposite: of how to splurge your untold riches, to how to protect yourself and your wealth!
All is not lost, however. I may have painted your lottery win in a bad light, it is still a life-affirming, astounding, enviable, life-changing piece of fortune that has left you with an incredible tool. A tool that can offer you the freedom to take you wherever you wish! Just don’t let it replace you as the driver.
“A wise person should have money in their head, but not in their heart “Jonathan Swift!”
Fortunately, we have some sound advice for you. So keep reading!
Things to do when you win the lottery.
1. Claim ownership of your ticket.
It sounds obvious, but the vast majority of players don’t put their details on the back of their lottery tickets
A lottery ticket is a bearer instrument, this means that anyone that scribbles a name on it that matches a photo ID can claim the prize. So if you haven’t signed it and go out celebrating only to wake and see on the news that your cleaner has claimed the prize, tough luck!
If you have won online and don’t have a physical ticket, then the lottery ticket retailer is contractually bound to present you with the winnings regardless of the fact of whether you bought it through a lotto betting agent or one that sells official tickets.
If it would make you feel happier you could also screenshot it and keep any transactional data. With this, there isn’t a court in the land that would not rule in your favour.
2. Remain anonymous.
This will be a given for many of us, and many of us have already hypothetically engaged in this question. There is no doubt that a personal public revelation of this sort could cause you to become a target to would-be fraudsters and even people who may wish you harm. Not to mention the request for handouts.
Many lotteries and agents will request that you reveal yourself for a handover ceremony. Some will be quite adamant about it but if you really wanted to avoid it you could get a Lawyer to claim the prize on behalf of a trust.
Alternatively, if you bought your tickets via an agent like onepoundlotto.com then you always have the option to remain anonymous.
On the flip side, you may be a Billy big balls who loves the limelight! If you win a large amount then you could potentially be a local celebrity in your domicile and that might suit you fine.
3. Read the terms of the lottery.
If you win in the UK and are playing on a lottery offered to the UK audience then your winnings will be tax-free. HMRC do not see UK gambling revenue as taxable earnings. However not everywhere has a tax authority as sympathetic as ours, and various taxes could be imposed on your winnings. The obvious example is the US where a federal tax known as Federal Withholding will immediately take a big juicy bite of 24% out of your ass. A bit unsporting hey? That’s not all, various states in the US also have varying degrees of state tax that they will also impose. If that wasn’t enough, now you are classed as a top earner and will move up to a 37% tax bracket.
When all is said and done you could lose up to 48% of your Jackpot win before you have even sunk a Mojito on a Caribbean island.
If you are playing outside the US in a domicile that doesn’t recognise gambling revenue as earnings then it is possible to claim all of the tax back. Ironic that you will be considerably better off playing on a US lottery from outside of the US hey?
Despite the taxes, most of the US Jackpot prizes are offered/advertised as an annuity Jackpot. This means the total of the Jackpot if it is paid to you over 29 years in 30 installments. Each annuity payment is 5% higher than the previous year to adjust for inflation.
Of course, there is a cash lump sum option, but this will be significantly lower than the annuity jackpot. If you won the Powerball or Megamillions jackpot, this is the first big decision that you would need to make.
You might decide that you are not great with money and like the idea of annual payments, or you might just want a huge lump sum, maybe because you just don’t want to wait (after all you didn’t play the lottery with the intention of winning and getting paid 30 years later did you?). Or you may just want the huge lump sum because you are money smart enough to see a way to get your money to work for you and make more than the annuity jackpot over the next 30 years anyhow.
Either way, this is why we recommend that you seek immediate specialist tax advice from a reputable law firm. Do your research, there are lots of lists ranking the best law firms in each country, or consult a regulatory body such as the American bar association (US) or The Bar Council (UK). They are expensive, but you can afford them and it might be the difference between you clawing millions back from a tax authority like the IRS and not.
4. Avoid sudden lifestyle changes and immediate huge purchases.
For one this will attract attention and if you have chosen to remain anonymous then you may want to remain incognito too. So mink coats and flashy cars like in the film Goodfellas might attract unwanted attention.
We understand that it is only natural to want to celebrate your windfall. Maybe calculate a reasonable fixed amount for splurges and stick to it.
Save the big spends for later. Purchasing property seems like a safer investment than most, but if people know you have millions in the bank then you are going to struggle to get a fair price on a property. If you don’t know the area and rush into a purchase, you may find that actually, it’s not for you. You may try and sell quickly and lose money on it. Maybe take some time, or better still rent in that neighbourhood first to get the feel of it. According to the National lottery Statistics, 69% of millionaire winners move house.
The temptation to buy supercars, yachts and helicopters are clear. Who wouldn’t love to drive a Ferrari to an airstrip, jump on a helicopter and fly to their private yacht? Sounds great hey?
I don’t want to piss on your chips, however, do your maths and research. The reality is, supercars as a whole lose massive amounts of value very quickly. Sure if you had good foresight and bought well they could go up in value and be worth a lot of money in 30 years. But not if you have stuck 100, 000 miles on it and scraped it on a pillar in Tesco’s car park. The average number of cars bought by millionaire winners is 4.5.
Most yachts have huge running costs, not to mention the fact that most yacht repossessions are due to the expensive mooring cost payments.
As for helicopters, they are even more expensive than a similar size plane. Anything rotary needs a lot more maintenance to keep it in the air and that is even before you get a twin jet-engined chopper.
5. Pay off all of your debts.
Because why wouldn’t you if you could! For every pound of debt you pay off, it’s one less, plus the interest, that you owe. For every pound you invest you can not be sure that it will grow or shrink but you can be sure that every pound of debt will only ever grow.
Depending on the size of your mortgage relative to your windfall, we would still advise you to pay some, if not all of your mortgage off. Despite the financial security, it will also feel liberating.
However, it’s possible in some countries that the mortgage interest deduction may help lower your taxes in the coming years, so talk to your accountant and tax adviser about this.
6. Get a trusted team behind you.
As we mentioned before with a law firm, do your research! You may have just accumulated more wealth than most large enterprises. But it’s just you, a large enterprise would have a team of lawyers, accountants, financial advisors, directors, managers, secretaries, and a CEO to help them make sound, informed decisions on how to manage, spend, invest and work their money in the best possible way for them.
As a minimum, you will need to keep your lawyers but also invite an accountant and an investment advisor to join your team.
It’s going to be hard to find the right team at first. Think of it as finding a good tradesman. If you employ a plumber to fit your bath and it leaks at every joint, you may not use them again. Likewise, if a team of lawyers or financial advisors are not working out for you, get rid of them. After all, you are the CEO now.
With regards to a financial advisor, I always feel that it is somewhat contradictory choosing to take the advice of someone who is yet to make their millions. But we can look at their portfolios of client case studies to gauge their results. It’s always good to get recommendations, but only take them at face value. Amongst all of the heinous crimes that disgraced financier Jeferey Epstien committed, was allegedly a multi-national Ponzi scheme, and yet prestigious people such as Lex Wexner trusted him to manage billions of dollars.
Once you have your team, it must be clear to them that they must all work together, in time you can ask one of them to coordinate the group effort. Effectively calling most of the shots but with the buck still stopping at you. Never agree to sign over control of your organisation, assets, or attorney of power. Lottery winners in the past have fallen foul of this.
7. Get a plan
Initially, after your win, there will be a lot of noise from people close to you. Friends and family will all have advice for you on how to handle your affairs going forward. This is where you might see who really cares for you. If they demand money from you I would question their motives and even suggest that they do not genuinely care for you.
Despite winning the lottery money is finite. A lottery win is a one-time event!
It might be worth taking some time out at this point. Maybe go away somewhere, with your spouse, boyfriend, girlfriend, etc. take stock, take time to cope with things emotionally.
At this point you may already have quit your job (52% of millionaire winners in the UK do this immediately), this is already a big change of routine.
Your new routine is going to be somewhat different, so get a plan to help you determine what that will resemble. Start thinking about your new goals and how much money you will need to do that. Be it investments, philanthropy, or helping the family out.
Run everything past your new team of advisors. They can even advise you on the tax efficiencies of giving to charities.
If you want to invest, ask your advisors to create an investment portfolio based on both equities( such as stocks) and fixed income (like bonds). But remember: if it sounds too good to be true it probably is! Maybe just dip your toes in a few things first to see what works for you. Wealth is not familiar to you hence it will take a lot of self-discipline to look after your winnings and not go on wild spending sprees.
One way to restrain yourself is to only spend income, not principal. Especially in the investment world of the current era, “It requires a lot of principal to create income and once you start spending principal, it quickly diminishes,” says Dennis I. Belcher, a lawyer with McGuireWoods in Richmond VA.
In any case, if we are honest the interest on £50 million alone is far greater than 99.9 % of the population are used to.
Giving to family
If you decide that your family is not too bad, and you do want to help little Jimmy go to Uni and have an awesome uni pad, get your advisors to tell you the best way to do this. In the UK any gift, (be it property or cash) over £325K will be subject to inheritance tax. If you want to get clued up on this please read our blog post ” Do You Have To Pay Tax On Lottery Winnings In The UK?“ https://one-pound-blog.jamiedeakindesign.com/do-you-have-to-pay-tax-on-lottery-winnings-in-the-uk/
Investing in a business
It may have always been your dream to invest in yourself and create your business empire. 7% of UK millionaire lottery winners do just this. If you are not already experienced in business and even if you are, still consult your advisors. It may be a business that you are more well versed in and have more knowledge than them. Hence you might have some foresight to see an opportunity that they can not. But they can still help, with the numbers and business plan. Don’t be hasty though, you should still consider your business opportunity as if you were investing some else’s money. That way you will not overlook important factors such as market research and it will aid you in making prudent decisions. Like starting any business, you will encounter lots of doubters, so even with all the advice in the world, a lot will be dependent on your belief in the business.
At the early stages of any business, it requires blood sweat and tears. So be prepared. Even if you anticipate taking a back seat role from day one, you may find yourself being dragged into it on a full-time basis. This will come with stresses, be sure that this is what you want? Many businesses fail in the first few years. This could cost you financially, but also the mental impact of failure could be quite damning.
However, you may just see it as a hobby project doing something you love. If this is the case and you have plenty of seed money with no real bearing on if it fails or succeeds, then you should go for it.
8. Take steps to protect your assets.
This doesn’t mean buying yourself a biometric safe, 10 attack dogs, and a shotgun. Although if you desire that, well be my guest!
Protecting your assets is fundamentally an extension of being money-smart and not being a target. All of a sudden you will be exposed to external threats such as ex-spouses, creditors, the Taxman, and others.
This is not just for your sake but you also need to consider protecting your assets for your family after you are gone.
Fortunately, there are Asset Protection Strategies that offer a range of legitimate ways to shelter your wealth from external threats.
When considering these look at:
What degree of access to the asset(s) will you require?
Generally, less access equates to a greater level of protection.
· What level of return/gain will you expect or require from the asset(s)? Some options offer less returns in revenue
· What degree of authority over the assets would you like to keep hold of? Your options will be reduced if you decide to keep 100% authority or something not too far from that.
Facts that you should consider when judging the viability of your Asset Protection Strategy.
· Your asset portfolio: what type of assets do you own that you want to protect? The property, company shares, pensions, possessions, savings? Most notably: the location of these assets. Are they in your domicile or abroad?
· Your residential status: where are you liable for taxation, tax reliefs, and exemptions? This, in turn, will have bearings on your position, priorities, and options for asset protection.
Once you have established this have your advisors look into the different options available to you. Such as Trusts, Offshore Trusts, Limited companies, Family Investment Companies (FICs), and Foundations.
These all present advantages to a new lottery winner.
A trust could help you transfer an asset whilst retaining a degree of control. That asset will not be legally viewed as being in your possession therefore creditors cannot lay claim to it. This includes your current spouse should you separate. Assets in a trust will remain nontaxable by HMRC. If you wanted to further avoid tax you could create an offshore trust. This would be outside the scope of UK capital gains tax, but only if it didn’t hold assets in the UK since 2015.
Trusts will hold their value in the event of your death. A living trust can mean that when the trustee dies (you), the successor trustee takes over the trust without the need to go through the probate process. The importance of an up to date Will goes without saying. You should also review wills and trusts every few years or whenever there is a life event, such as a birth, death, marriage, or divorce.
A Limited Company is a separate legal entity to the owner or shareholders, the ‘veil of incorporation’ protects you as the business owner and your assets from claims arising during the normal course of business.
A Family Investment Company is a variation of an Ltd. They are used to hold investments, the resulting income is used to the benefit of one or more members of your family.
Foundations are essentially a hybrid structure. They are classed as an unrelated legal entity. They are distinctive in that they are not a company that issues shares, nor are they linked with any assets of the founder.
9. Create a budget
Yes, yes we know, you are stinking rich and are probably acting like Robbie Williams after signing his EMI record deal. The thought of creating a budget seems absurd.
However, you must have noticed in life that it is often the people with the least that give the most and the people with the most that give the least. Could it be that this is the secret to staying rich?
You may have lived to a budget before and we advise you to watch what you spend whilst minding your budget going forward.
Your budgetary requirements will have changed. But you still need to determine how much it is going to cost you to heat and power your 12 bedroom country house and outdoor swimming pool. Work out how much money you need to allocate to your costs each month, how much you need to save, and even how much you should put into your pension. Like I mentioned before “Money is Finite” and even billionaires have lost all of their wealth. A pension is a sound contingency plan for you when you make it to retirement.
10. Live your best life.
You have been given an opportunity to grab life by the balls and do all the things that are humanly possible. So do it!
Just try not to be a smug git whilst doing it. Folks will already be jealous of you and no one likes a show-boater.
Don’t spend it all on Cristal Champagne, Black Russian Caviar, and cocaine!