Have you won a big lottery sum? It's a life-changing event that few people will ever understand. But along with all the good it can bring -- stability, generosity, and family success -- there are also a lot of pitfalls. Avoiding tragedy and financial ruin begins before you even receive your winnings. Here are the four steps you should take from the beginning.
1. Hire Advisors
Since most lottery winners are not professional money managers, it's vital for them to hire a team of those who are. Your team should have an experienced CPA, a tax or estate attorney, and a financial advisor. Such professionals should be in place before the money reaches your hands if possible. They can guide you through decisions, such as whether to take a lump-sum distribution or an annuity, as well as help you minimize taxes and make sure they get paid on time.
2. Learn to Say No
Lottery winners are often a little more famous than they would like, and this results in a lot of headaches when people and organizations come asking for money. By working with your advisory team even before you receive a check, you can come up with a plan for using the money without outside pressure. This will help you determine how much you want to give away and to whom. Learning to say no to emotional stories, old acquaintances, and questionable business ventures will be a long-term skill you will need -- especially since some lottery winners receive such requests for years or even decades.
3. Stash Money in the Right Place
Most people assume that a standard savings account is the safest place to park a large amount of money until you can decide what to do with it or execute your plan. However, you will need to keep in mind that a large winning sum may exceed standard safety nets. The FDIC, which provides insurance for most bank deposits in the event of a bank failure, only insures most accounts up to $250,000 per owner or co-owner. This may leave a lot of your money unprotected. Your CPA and financial advisor may help you determine how to increase your FDIC coverage through different types of accounts or whether placing your money in a brokerage account or LLC would be a better choice.
4. Take Your Time
Once you have your team and your winnings in place, take some time to live with your new circumstances before making large-scale decisions. Jumping into investments you haven't researched, buying an overpriced home, or embarking on a lavish spending spree can ruin your newfound economic bump. The process of deciding how to use this money wisely may take a year or two -- or even longer -- and there's no "use-it-or-lose-it" requirement to spend it all as soon as possible. Remember, slow and steady wins the race.
Once the excitement of initially winning fades, it's time to decide how to make the most of your windfall. By creating a winning team and learning how to be patient and careful, you can ensure that your winnings will last a lifetime -- or even more.