Think you've got the Mega Millions, Powerball, or New York Lottery jackpot in the bag? Before picking out the color of your dream jet, consider dreaming more long-term. Lottery winners are notorious for losing it all, as Business Insider reminds us.
If you're one of the fortunate few to win the lottery, here are seven estate planning tips to lengthen the rainbow to your pot of gold:
- Write a will. Learn from the mistakes of other New York millionaires who died without will. The state will try its best to distribute your property fairly, but if you have a specific way you want your assets to be distributed, it's best to write up a will.
- Name an executor. Executors have the big responsibility of making sure your last wishes are executed properly, in accordance with your will. They oversee finding assets, contacting heirs, distributing property, and filing paperwork.
- Start a trust. Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during life. Trusts create a "fiduciary" relationship running from the trustee, who's basically a gatekeeper, to the beneficiary. The trustee always has to act in the best interest of the beneficiary when dealing with the trust property. It's a great checks-and-balances system.
- Create a POD account. Payable on Death (POD) accounts are bank accounts with an instruction that upon your death, the account shall be inherited by a beneficiary whom you name, without going through probate. PODs very easy to set up.
- Prepare to pay taxes -- lots of them. The IRS counts lottery winnings as taxable income that must be reported. Prize checks subject to federal withholding tax will come with a Form W-2G to show how much tax was withheld. New York also imposes a state withholding tax of 8.97% (plus 3.648% for New York City or 0.897% for Yonkers), according to the Tax Foundation.
- Talk finances with your kids. With so much money on the table, it's important for your children to know about your estate plan. Even adult children can misunderstand their parents' finances. Many aren't fully aware of their parents' net worth or the financial pressures they face. It will help a great deal if your kids have an accurate picture of your financial situation and your personal wishes.
- Get a lawyer. Money does strange things to people It helps to have a neutral party keep you protected and on track. A New York estate planning lawyer can help you plan financially for the long haul.