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What would you do if you won $1 billion?
If you are one of the two lucky ticket holders who won the lottery last weekend – or you plan to win the lottery in the future – then listen up.
Here&s;s what you need to know and the steps you need to take when you win the lottery.
&l;strong&g;$1 Billion in Lottery Prizes&l;/strong&g;
In a $1 billion lottery weekend, one Powerball ticket sold in New Hampshire matched all six numbers and the ticket holder can claim a $559.7 million jackpot. In Florida, another ticket holder can claim a $450 million Mega Millions grand prize.
What are the odds of winning each of these lottery prizes? About one in 302.5 million for the Mega Millions, and one in 292.2 million for Powerball.
If you&s;re a lottery winner, here are your 5 next steps:
&l;strong&g;1. Remain anonymous&l;/strong&g;
If you win the lottery, your best bet is to remain anonymous.
With your newfound fortune, the last thing you want is to draw attention.
However, the choice may not be yours.
The rules regarding anonymity vary by state, with some states requiring all lottery winners to disclose their identity.
Remaining anonymous when you win the lottery can only be done in six U.S. states: Delaware, Kansas, Maryland, North Dakota, Ohio and South Carolina.
The remaining states where Powerball is sold, including Washington, D.C., Puerto Rico and the U.S. Virgin Islands require that winners publicly disclose their identity.
Lottery commissions strive for transparency, and therefore typically want winners to disclose their name, city and prize amount.
Despite such limitations, some winners have accepted lottery prizes through legal structures such as a blind trust that can protect their identity.
&l;strong&g;2. Sign the winning lottery ticket&l;/strong&g;
It may sound outdated, but you should always sign the back of a winning lottery ticket.
A lottery ticket is considered a bearer instrument, which means that whoever signs the ticket can claim the lottery winnings.
&l;span class=&q;st&q;&g;Therefore, if you lose an unsigned winning ticket, the person who find it legally can claim the prize.&l;/span&g;
&l;strong&g;3. Select an upfront cash payment or the annuity payments&l;/strong&g;
When you win the lottery, you have an important choice regarding your lottery winnings.
You can receive a one-time, lump-sum cash payment now, or you can receive annuity payments over the next 29 years.
In last weekend&s;s lottery drawings, the $1 billion in combined winnings represent the annuity payment option. The upfront cash payment would be approximately $$358.5 million for Powerball and $281 million for Mega Millions.
Which payout option should you choose?
Consider the time value of money &a;mdash; that is, how much you can earn under each scenario comparing the timing of the payments that you receive.
A dollar today is worth more than a dollar tomorrow.
With a lump-sum payment, you can invest the proceeds now and earn a financial return.
The annuity option spreads your winnings over 30 years, which can help limit any potential reckless spending.
Overall, you should compare the after-tax proceeds and your intended investment return of each option.
&l;strong&g;4. Get sound financial, legal and tax advice&l;/strong&g;
Your financial life is about to get more complex.
So, don&s;t go it alone.
You need to build a brain trust that includes, at a minimum, a financial, legal and tax advisor.
Ensure that all your advisors work together to manage your investments, tax planning, insurance and estate planning, among other important aspects of managing your wealth.
Also, make sure you sign your own checks.
&l;strong&g;5. Pay off all your existing debt&l;/strong&g;
One way to simplify your financial life is to pay off your existing debt – whether you have student loans, a mortgage, credit card debt or other liabilities – with your lottery winnings.
Could you keep the debt outstanding and earn a higher financial return by investing your proceeds in the stock market? Perhaps.
However, extinguishing your financial obligations will make your financial life easier.
And when you win the lottery, it&s;s all about living the easy life.