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With more money, more problems? Managing a windfall

After the Big WinAfter the Big Win: With more money, more problems? Managing a windfall
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A chance to split a $380 million jackpot. Where's the problem in that?

Sure the money will change the lives of the Mega Millions lottery winners, but it's imperative that they have a sound financial plan. Failure to map out a strategy for their winnings could lead to misery.

A retired man in Washington, Jim McCullar, claimed his prize on Thursday, while the Idaho ticket holder has yet to surface.

The delay in coming forward after Tuesday's drawing means the winners are likely following the first prudent step for anyone suddenly coming into lots of money — keep quiet until you figure out what you're going to do with it.

Although winning the lottery is one of the more glamorous ways to attain sudden riches, there are several ways to come into a cash windfall: Inheriting money, receiving proceeds from a life insurance policy or selling a business, are far more common.

Whatever the circumstances, planning is essential.

Many people think having a fortune means financial worries and planning are over, said Charles Mayfield, a financial planner at Atlanta-based Chappell, Mayfield & Associates. "That couldn't be further from the truth."

Although it's fun to think about winning millions upon millions, Mayfield said the typical windfall he sees is an inheritance between $500,000 and $2 million.

The first thing one should do is keep quiet and not get carried away with excitement.

Next it's important to determine the best immediate use for the money, which usually means paying down debt.

Then it's a matter of seeing how the money can best be put to work.

If the person has adequate retirement savings, then it's acceptable to entertain some of the items that may be on a wish list, like a vacation home.

And it's essential to think long term. Any discussions about how to handle a windfall must include proper estate planning.

Get help

To help create a plan it's wise to invest the time and money required to assemble a team. That should include an attorney, an accountant and a financial adviser.

"What it will boil down to is finding trusted advisers they can speak candidly with — and that goes for any amount of money," Mayfield said.

Winners without personal relationships with such professionals may find it difficult to place their trust in people they don't know. Relying on recommendations from family members and friends helps.

Organizations such as the National Association of Financial Planners and the National Association of Personal Financial Advisors can also provide referrals.

It's important to get references and choose someone who's easy to talk with. It's also a good idea to make sure they've been in business for at least 10 years, said Myra Salzer, founder of The Wealth Conservancy, a wealth management firm based in Boulder, Colo.

Also find out if the adviser was able to minimize client losses during the economic downturn.

Choose wisely

One of the first decisions lottery winners must make is whether to receive their prize as a lump sum or take the winnings over a period of years. The decision needs to be based on their plans for the money, tax implications, and other considerations.

The $380 Mega Millions jackpot will be split among the two winning ticketholders. That's a $190 million each if paid in 26 annual installments. If taken as a lump sum, it comes to $81 million for the Idaho winner after state and federal taxes are deducted. McCullar gets to keep $90 million because there is no state income tax in Washington, only federal taxes are taken out.

Wealth advisers say invested properly, the lump sum option is probably the best choice. However, impulse spenders might be better off taking annual installments to avoid squandering the newfound wealth.

Take time

If you come into a windfall, you may need to take time off work and really spend the time necessary to lay the groundwork.

Financial decisions such as setting up a separate bank account for the money and, in the case of a lottery, how to handle all the attention must be made quickly. Work, for at least a day or two, may need to wait.

Stay grounded

Millions of dollars can be life changing. For those who come into such large sums of money, it can be a challenge to stay level-headed

Stories abound of lottery winners who squandered their money and ended up in poverty. Others saw marriages deteriorate and other personal relationships suffer.

Managing the emotional aspects of newfound wealth is no small task and should be taken seriously. It may include handling family and friends' expectations of their suddenly wealthy relative or friend.

Consider the case of William "Bud" Post III, who won a $16.2 million Pennsylvania Lottery jackpot in 1988.

See news stories about William "Bud" Post III:

The former carnival worker living on Social Security disability when he won experienced misery, leading him to refer to his good fortune as the "lottery of death."

Businesses he started with siblings failed. His sixth wife left him and his brother was convicted of trying to kill him. A girlfriend sued successfully for a third of the winnings.

In 1996, a bankruptcy judge auctioned off the $4.9 million remaining of his winnings to pay debts, leaving him with $1 million. He died at age 66 in January 2006 of respiratory failure.

For those who come into truly life changing wealth, maintaining a routine, friendships and some normal aspects to pre-wealth life is a good idea, Salzer said.

One of the first financial decisions that should be made is to set aside enough money to take care of necessities and basic wants. For some people that might mean $10 million from which $250,000 to $300,000 can be drawn a year to pay expenses.

"Beyond that is building your legacy," she said.

"Once financially secure, the whole world is available to you," she said. "The choices can be so paralyzing."

AP, Lottery Post Staff

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35 comments. Last comment 6 years ago by dk1421.
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savagegoose's avatar - ProfilePho
adelaide sa
Australia
Member #37136
April 11, 2006
3300 Posts
Offline
Posted: January 10, 2011, 11:56 am - IP Logged

one thing about winning lotto, you'll never get sympathy ever again

2014 = -1016; 2015= -1409; 2016 JAN = -106; FEB= -81; MAR= -131; APR= - 87: MAY= -91; JUN= -39; JUL=-134; AUG= -124; SEP = -123; OCT= -84  NOV=- 73 TOT= -3498

keno historic = -2291 ; 2015= -603; 2016= JAN=-32, FEB= +12 , MAR= -86, APR = -77. MAY= -48, JUN= -29, JUL=-71; AUG = -52; SEPT= -43; OCT = +56 NOV = -33 TOT= -3297

    Avatar
    San Diego, CA
    United States
    Member #58386
    February 12, 2008
    287 Posts
    Offline
    Posted: January 10, 2011, 12:16 pm - IP Logged

    There are absolutely negatives to winning the lottery.

    However, the positives FAR outweigh the negatives.

     

    I was watching a show about a lottery winner who lost her best friend since childhood after she won.  Her best friend said that the winner was "in a different place" now than her and could no longer be friends with her.

     

    That is almost understandable in a way.

      freeobama's avatar - Lottery-057.jpg
      Sunny part of town
      United States
      Member #102877
      December 27, 2010
      224 Posts
      Offline
      Posted: January 10, 2011, 1:08 pm - IP Logged

      I will be very happy to except the windfall, hire a couple bodyguards and my favorite word will become NO!!! Evil

        Avatar
        Delaware
        United States
        Member #93503
        July 1, 2010
        453 Posts
        Offline
        Posted: January 10, 2011, 1:39 pm - IP Logged

        There are absolutely negatives to winning the lottery.

        However, the positives FAR outweigh the negatives.

         

        I was watching a show about a lottery winner who lost her best friend since childhood after she won.  Her best friend said that the winner was "in a different place" now than her and could no longer be friends with her.

         

        That is almost understandable in a way.

        Yeah, that was on one of the episodes of "How the lottery changed my life". I would try and keep my friends, I really wouldn't want a luxury car, or even a HUGE house, i'd want life to stay the way it is except maybe a few nice purchases here and there, like a nice fancy restaurant once in awhile.

          Avatar

          United States
          Member #34931
          March 9, 2006
          98 Posts
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          Posted: January 10, 2011, 2:49 pm - IP Logged

          Yeah, that was on one of the episodes of "How the lottery changed my life". I would try and keep my friends, I really wouldn't want a luxury car, or even a HUGE house, i'd want life to stay the way it is except maybe a few nice purchases here and there, like a nice fancy restaurant once in awhile.

          Then there's the story of Jim Gatzke.

            joshuacloak's avatar - Money Swim-uncle-scrooge-mcduck-35997717-677-518.jpg

            United States
            Member #32537
            February 12, 2006
            698 Posts
            Offline
            Posted: January 10, 2011, 2:49 pm - IP Logged

            any problems are self created  by the winners 100%, that's why they never get sympathy ever again! so i agree with savagegoose

            its like giving a homeless man money, only to find out he spent it on boozes! 

            you can't fix stupid with money, nor take a pill for it

            as one comedie said so wisely

             

            i sure think the best way to prevent all bad ending is

             

            buy stocks that pay Very nice dividends, and hold onto them forever

            Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits

            aka the company's Do the work for you,  You just have a small owner ship in their hard work :D, its idiot proof way to make money!, hardest part for a idiot would be packing the best ones!, then the hard work over



            then its called SPEND LESS THEN YOU EARN,   it works for low income people, middle class, and yes, even the richest of us humans

            any sane person would manage money this way, Spend less then you make, MADNESS is spending more then you make/have

             

            plus their kids and great grand kids will be set for life , the stock market can crash all it , who cares if your stocks retail  value per say goes down, long as them dividend checks keep coming, your set, some money people call this passive income, as you don't do jack, and sure get paid for life

             

            also never invest into anyone or anything that's IN debt, that goes for EVER company on earth

            1 they must have a large amount of cash on hand, 2 they must be near debt free or could pay it all off in 1 year, with all the cash they have on hand , and cashflow nearly fix'd to stay or grow higher over the long term of their company,

            hmm lets give you a idea of a Bad investment

            #1 has no plans to get out of it atm"debt", only a fool would invest into us treasury bonds atm"govt pocketbook keeper", as  they are so far in debt,they have no plans other then pure "Talk" of plans to get us out of it, who in the right mind would trust them to pay you in 5 to 30 years out, a fool would  thats who, hell  avoid the bond market like a plague, avoid banks sense they loan out more money then they can pay back to their investers/cilents , you do know the FDIC already stated the year out in pure epic failer,  8 banks already failed in 2011,   banks can't be trusted

            http://www.fdic.gov/bank/individual/failed/banklist.html

            have fun, and know this,  next time the big banks are in deep, the us govt can't bail them out anymore, as us govt is the one the needs the bailing out atm, and guest what, god don't do bailouts,  so their beeped ,   never trust a bank/company/govt that has more debt then money,  with your  own money if you can't afford to lose it all,

              dpoly1's avatar - driver
              PA
              United States
              Member #66141
              October 16, 2008
              1672 Posts
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              Posted: January 10, 2011, 3:02 pm - IP Logged

              Financial Advisers make money taking your money!

              No wonder they recommend using a Financial Adviser!

              I'll take care of it on my own with tax advice from a CPA!

              I will have plenty of time to do research on my own! Approve

                butterflykt's avatar - Lottery-043.jpg

                United States
                Member #102743
                December 25, 2010
                108 Posts
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                Posted: January 10, 2011, 3:18 pm - IP Logged

                Financial Advisers make money taking your money!

                No wonder they recommend using a Financial Adviser!

                I'll take care of it on my own with tax advice from a CPA!

                I will have plenty of time to do research on my own! Approve

                I agree about Financial Advisors.  Most of the money would be put into the CDARS Program (The Certificate of Deposit Account Registry Service).

                All things are possible to those that believe!!!!!!Wink

                  socalgal's avatar - bobblecars3
                  California
                  United States
                  Member #103560
                  January 3, 2011
                  56 Posts
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                  Posted: January 10, 2011, 3:46 pm - IP Logged

                  Focus on wealth building while managing your assets wisely. Control spending and avoid impulse buying.

                  They might want to move to a house on a hill with a high fence and a few guard dogs. Security cameras all over the area.  Keeps everyone from coming over. Big Smile

                    Todd's avatar - Cylon 2.gif
                    Chief Bottle Washer
                    New Jersey
                    United States
                    Member #1
                    May 31, 2000
                    23274 Posts
                    Offline
                    Posted: January 10, 2011, 5:19 pm - IP Logged

                    Then there's the story of Jim Gatzke.

                    Yes, his story was posted on Lottery Post.

                     

                    Check the State Lottery Report Card
                    What grade did your lottery earn?

                     

                    Sign the Petition for True Lottery Drawings
                    Help eliminate computerized drawings!

                      Avatar
                      Florida
                      United States
                      Member #102882
                      December 27, 2010
                      334 Posts
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                      Posted: January 10, 2011, 7:04 pm - IP Logged

                      Then there's the story of Jim Gatzke.

                      Thank you for sharing this story with us. I hate it when Doctors and millionaire CEO's win the Lottery.

                        Todd's avatar - Cylon 2.gif
                        Chief Bottle Washer
                        New Jersey
                        United States
                        Member #1
                        May 31, 2000
                        23274 Posts
                        Offline
                        Posted: January 10, 2011, 7:10 pm - IP Logged

                        Thank you for sharing this story with us. I hate it when Doctors and millionaire CEO's win the Lottery.

                        Aw, it doesn't bother me.  Without them playing the lottery too, the jackpot wouldn't be as big.  And having them win sometimes reminds me of just how random it all is.  I love it.

                         

                        Check the State Lottery Report Card
                        What grade did your lottery earn?

                         

                        Sign the Petition for True Lottery Drawings
                        Help eliminate computerized drawings!

                          sully16's avatar - sharan
                          Ringleader
                          Michigan
                          United States
                          Member #81740
                          October 28, 2009
                          40566 Posts
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                          Posted: January 10, 2011, 7:14 pm - IP Logged

                          Both are great stories Todd, thanks.

                          Did you exchange a walk on part in the war ?

                          For a lead role in a cage?

                           

                                                                      From Pink Floyd's " Wish you were here"

                            Avatar
                            San Diego, CA
                            United States
                            Member #58386
                            February 12, 2008
                            287 Posts
                            Offline
                            Posted: January 10, 2011, 8:52 pm - IP Logged

                            Financial Advisers make money taking your money!

                            No wonder they recommend using a Financial Adviser!

                            I'll take care of it on my own with tax advice from a CPA!

                            I will have plenty of time to do research on my own! Approve

                            I agree with this statement for the most part.  99% of financial advisors don't have your interests first.  Thankfully, I found one that does put the clients interest first.