Page 8 - NC Triangle Vol 7 No 1

PATRICK H. YANKE, CFP | Financial We Won the Lottery
... Now What?
WEWON THE LOTTERY! e $434 million Powerball! You probably saw our picture ...
it was all over the internet!
OK, we didn’t actually win the lottery. We didn’t even
buy a ticket. But “sudden wealth” comes in many forms, not just lotteries. It could be an inheritance, proceeds from the sale of a business, a huge bonus or an award from a lawsuit as either the plainti or the attorney for the plainti .
Interestingly, the advice for lottery winners is similar to the advice on how to treat other types of sudden wealth.
So, let’s assume I won the lottery...
WAIT
I will wait and keep my mouth shut. Many people have had things they wanted kept secret go viral. is is one of those secrets. I don’t want my name trending on Ances- try.com with people hoping to nd out they are related to me—something at least twice-removed (and probably for good reason). I certainly don’t want to be a magnet for robo-callers.
Sometimes the hardest thing to do is nothing... but there are times when nothing is exactly the right thing to do.
ASSEMBLE A TEAM
While still keeping news of our windfall silent, I will put together a team of advisors. I need an accountant and an attorney. e accountant should be conversant with the rules for handling lottery winnings. My attorney should understand strategies for asset-protection and estate plan- ning. I am a CERTIFIED FINANCIAL PLANNERTM prac- titioner and have experience with sudden wealth. But if I weren’t, I’d start working on a plan with a nancial planner or hire one if I didn’t already have one.
INCOME OR LUMP SUM?
Now for the big question... should I take a lump sum or the stream of income? Of course, in the case of the lottery, the lump sum would be less than the to-
tal of the stream of income.
In situations, such a structured settle-
ment, you have a choice of a lump sum or a stream of income.
It comes down to a matter of trust
and an understanding of the time-value of money. Do I trust myself with a large sum of money more than the politicians or entity managing the source accounts? e stories are endless of people who took their lottery win- nings or settlements as a lump sum and blew through the money in less than ve years. Either choice requires a high degree of personal nancial discipline.
SPEND AND INVEST
As a nancial advisor, I will set up a plan that prioritizes future income for the needs of my family. Annuities are good vehicles to insure and plan for future needs. I can create my own instant pension!
I will set up a number of annuity contracts from diversi- ed insurance companies from which I can draw money, when needed, or turn on lifetime income, when desired. I might set up a charitable structure, like a foundation or managed charity account, to reduce my taxation and man- age philanthropic e orts.
I will set up tax-deferred education savings accounts for each of my children, a special needs trust for my daughter, and prepare a legacy for my family through careful estate planning. I will pay o debts, set aside funds to pay taxes on the lump sum award, and patiently prepare for the blessings of changed nancial circumstances.
Should I retire? I like what I do and who I serve. I would keep working and use the winnings to supplement our lifestyle.
If I anticipate having large cash holdings, I will need to watch my balances at individual banks. I don’t want to keep more than the FDIC insurance limit at any one bank. Just as I diversi ed my income sources through multiple insurance companies, I would ensure my cash balances are not at risk in a bank or nancial crisis.
I will also provide for the here and now. Although my budget has grown, I should remain within its boundaries. en, once all my nancial goals are set, I may splurge on a few toys like new cars, a big vacation, and a Rolex. I mean, hey, why not. I WON THE LOTTERY.
This is a hypothetical situation used for illustrative purposes. Certi ed Financial Planner Board of Standards Inc. owns the certi cation marks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque design) and CFP® (with ame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certi cation Keep in mind that there is no assurance that any strategy will ultimately be successful or pro table nor protect against a loss. Opinions expressed here are Patrick Yanke’s and not necessarily those of Raymond James. Please consult your tax advisor if you have questions about these examples and how they relate to your own nan- cial situation. www.yanke nancial.com.
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