Trusts aren’t just for lottery winners

If you win a substantial amount of money by playing a lottery, there’s no question that it can significantly increase your financial independence. However, winning huge sums of money is a sudden wealth event that most people are ill-prepared to deal with which often leads to very irresponsible decision-making on the part of the winner.

The challenge facing lottery winners is getting past the initial shock of winning and then adjusting to becoming wealthy overnight. It’s important to engage the services of a team of experts including a financial advisor, accountant, and estate planning attorney who can provide advice about living trusts and other vehicles to protect your new-found wealth.

Many are under the misconception that the only individuals who should get a trust are wealthy. The reality is that a trust can work for anyone who wants to enjoy the benefits of their assets during their lifetime, then automatically pass them to their beneficiaries after their death.

The odds are against you

Unfortunately, your odds of winning the lottery like the Powerball or Mega Millions are about 1 in 300 million. The good news is that living trusts for “regular” people are great estate planning tools. A trust can provide privacy and allows you to pass property and assets to individuals, family members, or even your favorite charities. 

While trusts are used by the wealthy for the purpose of asset protection and transferring wealth from one generation to the next, they also provide several benefits to people who are not among the 1%.

Some of the benefits of creating a trust include:

  • Avoiding probate
  • Protecting beneficiaries 
  • Establishing a line of inheritance
  • Supporting a physically or cognitively disabled beneficiary
  • Reducing your liability when it comes to estate and income taxes

One of the biggest benefits for most is that their assets will be distributed to the beneficiaries per their wishes.

Just in case…

In addition to your chances of winning the lottery being minimal, more than half of the people who have won the lottery ended up broke. Even an exceptionally large win can be lost through mismanagement and poor decision making. According to the National Endowment for Financial Education, approximately 70% of people who suddenly receive a windfall of cash from winning the lottery will lose it within a few years.

Therefore, if you happen to be one of the few lucky individuals who buys a winning lottery ticket, prepare yourself and learn what to do, who to tell, and what to buy. Many advisors suggest that you take a very small portion of your winnings — 5% — and splurge.

Contact the Law Office of David W. Foley, San Diego estate planning attorney to help in setting up a trust for lottery winnings so that you can make the most of your unexpected windfall.