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Poor man's "Blind Trust" or LLC.

Topic closed. 13 replies. Last post 8 years ago by justxploring.

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Posted: June 2, 2008, 9:03 pm - IP Logged

Lets discuss the merits of this. What is the "poor man's blind trust"? It's a lottery club. First let me state that this is a follow up to an earlier post by JWBlue on 15May "Why is it beneficial to collect a lottery jackpot as a llc." My facts come from the  Michigan.gov/lottery site and from email  responses directly from them.  The strategy here is to mitigate or postpone your name getting out. Giving you time to .......................... Response from Michigan.gov/lottery: "If you chose to claim your ticket as a club, only the club name and city will be released." Forming a club is easy. A club can be as small as 2 people. Its up to the club to make the rules or no rules at all. There are no Federal guidelines, you don't need a lawyer!  Make it as simple as you want, again your just mitigating or postponing the potential problems. Form SS-4 will get your club a EIN/SS#.  When you claim your prize you will fill out form 5754-Statement By Person{s] Receiving Gambling Winnings. Part1 will have your clubs name and mailing address with the EIN# along with drawing date, prize amount, and taxes withheld{25% percent right off the top for federal, 4.35 Michagan}  . Part 2 will have club members info. Name, SS#, address and amount each member receives. The prize does not have to be divided equally among all club members. Your club - your rules.  The check is in YOUR name. Benfits to this: Club name and city are the only thing released to the press. If you were going to share prize money to family members or friends this way will allow you spread the wealth without YOU having to pay gift taxes. Just pick the percentages you want to dole out on form 5754. The IRS will tax  club members portion as ordinry income but no gift tax for you to pay. Now who you pick to share this dream is another story.............. Your basically setting up your own LLC or blind trust just as a lawyer would do. I also like the advice pigsNtrees gave to this earlier post about moving to another city and changing address on drivers license. 

    psykomo's avatar - animal shark.jpg

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    Posted: June 2, 2008, 9:27 pm - IP Logged

    Lets discuss the merits of this. What is the "poor man's blind trust"? It's a lottery club. First let me state that this is a follow up to an earlier post by JWBlue on 15May "Why is it beneficial to collect a lottery jackpot as a llc." My facts come from the  Michigan.gov/lottery site and from email  responses directly from them.  The strategy here is to mitigate or postpone your name getting out. Giving you time to .......................... Response from Michigan.gov/lottery: "If you chose to claim your ticket as a club, only the club name and city will be released." Forming a club is easy. A club can be as small as 2 people. Its up to the club to make the rules or no rules at all. There are no Federal guidelines, you don't need a lawyer!  Make it as simple as you want, again your just mitigating or postponing the potential problems. Form SS-4 will get your club a EIN/SS#.  When you claim your prize you will fill out form 5754-Statement By Person{s] Receiving Gambling Winnings. Part1 will have your clubs name and mailing address with the EIN# along with drawing date, prize amount, and taxes withheld{25% percent right off the top for federal, 4.35 Michagan}  . Part 2 will have club members info. Name, SS#, address and amount each member receives. The prize does not have to be divided equally among all club members. Your club - your rules.  The check is in YOUR name. Benfits to this: Club name and city are the only thing released to the press. If you were going to share prize money to family members or friends this way will allow you spread the wealth without YOU having to pay gift taxes. Just pick the percentages you want to dole out on form 5754. The IRS will tax  club members portion as ordinry income but no gift tax for you to pay. Now who you pick to share this dream is another story.............. Your basically setting up your own LLC or blind trust just as a lawyer would do. I also like the advice pigsNtrees gave to this earlier post about moving to another city and changing address on drivers license. 

    "please,please,please">>>>>>>

    IF U mame (make) $31,000 a YR.

    yes, U pay 97% of taxes

    BUT, PSYKO know's >>>>>> Todd DOZ the LOTTERY POST for "FUN"!!

    BUTT, there is alway's a BUTT too D SITUATION>>>>>Todd is RICK$$

    RICK>>>>>>>>>!!!!!!!!

    LOL

    PSYKOMO

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      March 5, 2007
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      Posted: June 5, 2008, 12:25 pm - IP Logged

      "please,please,please">>>>>>>

      IF U mame (make) $31,000 a YR.

      yes, U pay 97% of taxes

      BUT, PSYKO know's >>>>>> Todd DOZ the LOTTERY POST for "FUN"!!

      BUTT, there is alway's a BUTT too D SITUATION>>>>>Todd is RICK$$

      RICK>>>>>>>>>!!!!!!!!

      LOL

      PSYKOMO

      What does this mean????????????????????

        Todd's avatar - Cylon 2.gif
        Chief Bottle Washer
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        Posted: June 5, 2008, 12:38 pm - IP Logged

        Lets discuss the merits of this. What is the "poor man's blind trust"? It's a lottery club. First let me state that this is a follow up to an earlier post by JWBlue on 15May "Why is it beneficial to collect a lottery jackpot as a llc." My facts come from the  Michigan.gov/lottery site and from email  responses directly from them.  The strategy here is to mitigate or postpone your name getting out. Giving you time to .......................... Response from Michigan.gov/lottery: "If you chose to claim your ticket as a club, only the club name and city will be released." Forming a club is easy. A club can be as small as 2 people. Its up to the club to make the rules or no rules at all. There are no Federal guidelines, you don't need a lawyer!  Make it as simple as you want, again your just mitigating or postponing the potential problems. Form SS-4 will get your club a EIN/SS#.  When you claim your prize you will fill out form 5754-Statement By Person{s] Receiving Gambling Winnings. Part1 will have your clubs name and mailing address with the EIN# along with drawing date, prize amount, and taxes withheld{25% percent right off the top for federal, 4.35 Michagan}  . Part 2 will have club members info. Name, SS#, address and amount each member receives. The prize does not have to be divided equally among all club members. Your club - your rules.  The check is in YOUR name. Benfits to this: Club name and city are the only thing released to the press. If you were going to share prize money to family members or friends this way will allow you spread the wealth without YOU having to pay gift taxes. Just pick the percentages you want to dole out on form 5754. The IRS will tax  club members portion as ordinry income but no gift tax for you to pay. Now who you pick to share this dream is another story.............. Your basically setting up your own LLC or blind trust just as a lawyer would do. I also like the advice pigsNtrees gave to this earlier post about moving to another city and changing address on drivers license. 

        Very interesting about Michigan's response about claiming as a club, and only showing the club's name.

        I think moving to another state is a bit extreme if someone happens to enjoy where they live, but the real key, it would seem, is to prevent your name from being released.  It also must be fairly hard to not talk about your big win, but that's probably the best approach.

        The thing you want to avoid is the Jack Whittaker syndrome of being robbed every couple of months.  (Or every week in his case.)

         

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

         

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

          Piaceri's avatar - sarsony1
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          Posted: June 5, 2008, 1:05 pm - IP Logged

          So, I guess I could create a lottery club of myself and my two college kids with whatever % I decide to "gift" to them, and the only taxes would be income taxes, right?  The bonus being that only the club name and city are released.  I think I will start one today.

           

          Hyper

           

          However, it sounds too simple.  Being a resident of the Great Taxing Entity otherwise known as Michigan, I am suspicious.

          face

          singlewinnersinglewinnersinglewinner   

            hearsetrax's avatar - 0118

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            Posted: June 5, 2008, 3:54 pm - IP Logged

            So, I guess I could create a lottery club of myself and my two college kids with whatever % I decide to "gift" to them, and the only taxes would be income taxes, right?  The bonus being that only the club name and city are released.  I think I will start one today.

             

            Hyper

             

            However, it sounds too simple.  Being a resident of the Great Taxing Entity otherwise known as Michigan, I am suspicious.

            color me curious .... but then I have a few friends up that way

              mylollipop's avatar - Trek STLOGO6.png

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              Posted: June 5, 2008, 11:00 pm - IP Logged

              Well of course!  Why not?  Let's go clubbing!  Party Good post!

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                Posted: June 12, 2008, 1:42 am - IP Logged

                Maybe in MI they only report the clubs name, but I posed a similar question to the FL lottery commission...

                If I won the FL lottery, and wished to include family via filing a 5754, is the 5754 part of the public record (thus available to anyone who asks for it)?

                I got what I think was a form letter response...

                Thank you for writing the Florida Lottery.  Occasionally we do have requests such as the one you are inquiring about, and gladly I will answer.  Anyone who may win an outstanding amount with the Florida Lottery, the winner(s) cannot remain anonymous.  Florida law mandates that the Florida Lottery provide a winner's name, city of  residence, game, date and amount won to any third party who requests the information.  However Florida Lottery winners home addresses and telephone numbers are confidential.

                Some clarification, because their response is confusing or contradictory..

                First, according to FL lottery regulations, there can only be "one" winner per ticket, and only one check or disbursement from the FL Lottery. That is to the person who signs the back of the ticket. If a winner fills out form 5754, it is the winner that issues a check to each of the persons receiving the winnings. The FL Lottery is only responsible for withholding the taxes for each of the individuals named in 5754.

                But if you look at the response, it says "winners" (plural) cannot remain anonymous. So that leads me to believe that form 5754 is part of public record, thus exposing all persons sharing in the winnings.

                If you did form a "club" in MI, what entity would you use? LLP, LP, LLC, S corp?

                If an LLP or LLC or LP, my guess is that you could pay as much as 15% more in taxes, since all earnings are subject to self-employment taxes. But I'm guessing at this point, since I don't know how the IRS would classify a winning lottery ticket in such an entity. Was it an investment? Capital gain? Regular income? Some of these carry different different tax consequences to the K1 of a LLC, LLP, LP, etc.

                You can be "semi" anonymous with an "S" corp, I think. The "winner" would start the S corp, with that persons name exposed to the public via the state filiing, claim the ticket, then add the "shareholders" or other winners as additional shareholders of the S corp. I don't know of any state requirement that requires the corporation to report the names of shareholders added after incorporation. All "earnings" of the S corp are reported on each shareholders personal 1040 via the K1, and are not subject to self employment taxes. Yes, the owner of the S corp has to draw a salary, but for what the corporation is shooting for (winning the lottery, buying tickets), that can be a nominal amount, subject to employment taxes. Again, I don't know if this would work, because of how lottery winnings in a corporation are classified. If it's investment income, and that's the sole source of revenues, it could wind up paying a hefty additional tax for having a large percentage of income from investments.

                Any comments?

                As for trusts, I really don't understand them. If I did set up a trust to share winnings amoung others, is that money readily available? In other words, can the trust liquidate right after the trust receives the winnings? Or is it dribbled out over time?

                  justxploring's avatar - villiarna
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                  Posted: June 12, 2008, 2:11 am - IP Logged

                  Trust are not gifts.  You can't just set up a trust to avoid gift tax.  Trusts are usually created to avoid litigation and protect your beneficiaries after death.  They are for wealth management and estate planning, not to share money with your friends if you win a jackpot.  If you give money to a friend, that's a gift.  However, if you win a big jackpot, just hire a good lawyer since you'll need one anyway.

                  I'm always puzzled by the amount of posts about anonymity on LP.  Bill Gates isn't hiding from the world and he's worth billions.  So is Oprah and many others.  One year George Lucas made over $400 million from his movies.  Merv Griffin was a billionaire.  How much is Michael Bloomberg worth?  Of course I'd want to remain anonymous for safety reasons, but it wouldn't be my biggest concern.  I'd be so happy that I won a lot of money that I'd deal with it.

                  IMO if someone wins millions and the only concern is someone finding out about it, then he won't be able to manage his wealth.  You can't go from living a modest lifestyle and working 50 hours a week to purchasing a large house with nice cars and unlimited funds without people noticing.

                    DC81's avatar - batman39
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                    Posted: June 12, 2008, 11:11 am - IP Logged

                    As I said in another topic, people tend to look at lottery winners differently than what they'd look at Bill Gates, Oprah or whomever didn't suddenly come into money. When it comes to the lottery the less people know where your money came from the better. There's a bunch of reasons why I wouldn't want my name out there, that's just a part of it. Of course if I couldn't in any way hide my identity I wouldn't turn down the winnings.

                    You can't predict random.

                      Piaceri's avatar - sarsony1
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                      Posted: June 12, 2008, 9:31 pm - IP Logged

                      I don't think it's so much anonymity as it is initial protection from being hounded by people with their hands out.  People like Bill Gates and Oprah have had quite a bit of time to "grow into" their wealth and their public persona.  Jackpot winners do not have the luxury of time. One day they are Joe Blow down the street and the next they are Joe Blow jackpot winner. 

                      Granted that notoriety will be relatively short lived because most beggers will move on if Joe Blow jackpot winner either doesn't share or is driven into hiding. Has anyone heard anything about that GA family from February? After the inital round of publicity (much more than I would have done), they are out of the national limelight.

                      For me, I already have a trust set up.  My home is in my trust and so are my 401k (as beneficiary) and my investment accounts.  They aren't much, but they will keep me from having to eat cat food in my old age. I'd like to protect them as much as possible today to ensure my financial health tomorrow.  When I win Mega Millions, the only thing I need to worry about is gift taxes for giving cash to family.  A lottery club sounds good just to have, well, just because. Wink

                      face

                      singlewinnersinglewinnersinglewinner   

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                        Posted: June 14, 2008, 10:28 am - IP Logged

                        This is an interesting discussion.  Here in Louisiana, a few Powerball prizes have been claimed by LLCs.  The only downside to that is members of the LLC are public record, since LLCs are registered with the state.  Most states also have that data online so getting it is quite easy for those up to no good.

                        We had a winner claim in the name of a trust a few years ago.  She had her attorney go claim the money and handle the publicity on behalf of the trust.  On the websites of both the Louisiana Lottery and Powerball, the winner is listed as the trust.  However, the local paper interviewed the winner and gave her name.  I don't know how they got the information, but they did somehow.

                        One thing about being anonymous is there's no 100% way to do it pure and simple.  If someone has the time and resources, they can track you down no matter what you do.  The best analogy to this I can think of is home security.  It's a fact that most homes that are burglarized are entered through an unlocked door.  Locking your door will deter most thieves, but not all.  If a thief thinks you have something worth stealing and wants to get in, they can get around that lock, so then you can install a security system.

                        A security system will deter thieves too, but again, if they think you've got something worth taking and they want to get in they'll get around it but again, most thieves prefer the easy target where they can get in and out quickly. Anything you do will only be a deterrent, whether it works or not, remains to be seen.

                        What does this mean?  Claiming 100% anonymous is next to impossible, but claiming anonymously enough will help.  If a winner's name is in the newspaper, TV, web, etc., it will be quite easy to find them and those who wish to part them from their money will attempt do so.  Claiming with a trust or LLC can make it harder(but not impossible) to find someone's name, so most probably either won't bother or give up trying when they see how much effort is involved and like most common thieves, will move on an easier target.

                        In addition to claiming using an anonymous method, winners need to do other things, like not act like Jack Whittaker, taking the attitude they have so much money they can do what they want.  Bragging about it, flashing money everywhere, etc., won't keep away the troublemakers. 

                        Just a few thoughts.

                        Prisoner Six

                        "I am not a number, I am a free man!"

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                          Posted: June 14, 2008, 10:39 am - IP Logged

                          I don't think it's so much anonymity as it is initial protection from being hounded by people with their hands out.  People like Bill Gates and Oprah have had quite a bit of time to "grow into" their wealth and their public persona.  Jackpot winners do not have the luxury of time. One day they are Joe Blow down the street and the next they are Joe Blow jackpot winner. 

                          Granted that notoriety will be relatively short lived because most beggers will move on if Joe Blow jackpot winner either doesn't share or is driven into hiding. Has anyone heard anything about that GA family from February? After the inital round of publicity (much more than I would have done), they are out of the national limelight.

                          For me, I already have a trust set up.  My home is in my trust and so are my 401k (as beneficiary) and my investment accounts.  They aren't much, but they will keep me from having to eat cat food in my old age. I'd like to protect them as much as possible today to ensure my financial health tomorrow.  When I win Mega Millions, the only thing I need to worry about is gift taxes for giving cash to family.  A lottery club sounds good just to have, well, just because. Wink

                          Although most winners don't have the kind of lives Jack Whittaker has had since winning, I've read stories here and other places about problems they have had.  Many have to deal with people for months on end looking for handouts or asking for money for questionable business proposals.  Others have lost friends or become alienated from their families due to refusing to give or keep giving them money.  One couple who won had made a deal do purchase a vehicle and after the news broke, the dealership backed out of the deal and insisted they pay a higher price than agreed upon.  They bought the vehicle elsewhere, but still it was nuisance for them.

                          Most of these things may be minor inconveniences, but inconveniences all the same that I'd rather not deal with.  That's why I will try to claim using a trust so I'll be harder to find and not have to deal with this nonsense.

                          Prisoner Six

                          "I am not a number, I am a free man!"

                            justxploring's avatar - villiarna
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                            Posted: June 14, 2008, 11:13 am - IP Logged

                            "...I'd rather not deal with this nonsense."

                             

                            Yes, I agree.  I guess the reason I never put much thought into it is in FL you can't do that.  People have written that I'm wrong, but Florida will not let a winner claim a jackpot anonymously, even a Trust.  They even have a .pdf file to download on their website so you can look at every name & location.  I've seen press releases where someone claims a Lotto Jackpot in the name of an LLC and his name is still listed.  Of course I'd want to collect any amount anonymously.  In fact, since I play games like Fantasy-5, I'd prefer it that way, since an amount like $50,000 won't change my life dramatically, but some people, might be knocking on my door for handouts.  Still, except for a few neighbors or people I've worked with in the past, I doubt if anyone would know.   My relatives all live out-of-state.  Eventually I'd tell them anyway, since anyone I care about would need to know in case I get sick or die.  I already have a Trust and Will with my sister as beneficiary to protect my assets (if any)

                            As I said before, no matter what happens, if someone wins a lot of money, I believe it would be impossible to keep your windfall private.  I guess it depends on your current lifestyle and how much you desire to change it, but how can anyone hide that from a friend?  One day you are working and the next you're not.  One day you're living in a small apartment or home struggling to get by and the next you're buying a beautiful new home with a swimming pool.  Saying you got a nice promotion isn't going to work!  I won't keep repeating myself, but for years on this board I've mentioned that lots of people make millions each year, a lot more than most lottery jackpots, and they just deal with it.

                            Yikes!  Did the shuttle just land?  Either that or we just had a small earthquake!