If you have won the lottery, then most certainly, congratulations are in order. However, before you collect your winnings, you may want to think about how you manage your brand-new wealth. You may be excited to cash it in, go on a spending spree, buy a whole island or even just a new house, fancy sports car, pay off any debt, and send checks to your family and friends, aside from the initial payment of income taxes to the IRS. However, the first thing to do – even before signing the winning ticket – is to call your trust and estate lawyer. In addition to any tax implications relative to the lottery winnings, including consideration on taking a lump sum or receiving payments, you may wish to have your trust and estate lawyer consider forming a lottery trust.
One question becomes, who manages the lottery winnings that comprise the trust? You may wish to manage it, or have a neutral party do so. Having a neutral party manage it may also help to protect your privacy. The trustee would be responsible for managing and investing the trust monies once received. You may even need your own wealth management team, with your attorney, your financial planner, your trustee, and others on board to assist. But to get to this point, you have to first determine with your trust and estate player how best to claim your lottery winnings.
One of the first things to consider is anonymity. Some states, including Florida, publish the names of lottery winners, together with the winner’s city of residence, the game and date won, and the dollar amount won. Anyone – meaning any third party – can request this information from the state of Florida, for example. If you do not want that information to become public, only the name of the trust would become public. So, in an effort to protect your anonymity, a trust may be a consideration, with an anonymous-sounding name. This means that the ticket is given to the trust and then the trust would then claim the lottery winnings. Someone else, such as your trustee or your lawyer, could then claim the winnings in the name of the trust.
A further consideration is when family members or co-workers have a lottery pool. A trust can help ensure equal distribution of the winnings, wince just one entity can claim the winnings for a specific set of winning lottery numbers. This trust could be in the form of an irrevocable trust, so that the winnings can be equally distributed to the multiple parties without having to rely on one party to distribute them, and since typically it cannot be altered, it may help to prevent future disputes.
A relatively recent Florida Supreme Court case discussed the lottery pool idea and whether an oral agreement to split lottery proceeds was violative of Florida’s Statute of Frauds (an agreement that could be enforced within a year). In Browning v. Poirier, 165 So. 3d 663 (Fla. 2015), the Florida Supreme Court reviewed an oral agreement between a boyfriend and girlfriend who lived together and orally agreed to split the proceeds of any winning lottery tickets. When she won, and he demanded his one-half, she refused to pay him, which led to the suit he filed for breach of an oral contract. She defended, claiming a defense of statute of frauds. Ultimately, the Florida Supreme Court determined that the oral agreement to split the proceeds of the lottery winnings falls outside of the statute of frauds, because it conceivably is an agreement that could have been completed within a year.
Perhaps if Browning and Poirier spoke with a trust and estate lawyer about the winning ticket in advance of demanding the funds from one another and filing suit, they would not have become involved in such a suit and instead could have established a Florida lottery anonymous trust for their winnings.
Forming the trust should happen in advance of claiming the lottery prize. There are nuances and variations in every situation and it is best to speak with your trust and estate lawyer to determine if setting up such a trust for their winnings.
Forming the trust should happen in advance of claiming the lottery prize. There are nuances and variations in every situation and it is best to speak with your trust and estate lawyer to determine if setting up such a trust for you and your family is best.