The first thing you should do is to take a deep breath – now take another one. Now close your mouth and keep quiet. You’re going to need some time to figure out what to do, and the less people who know about your new-found wealth, the better.
$700,000,000 – that’s a dizzying set of digits! After you get finished taking a few breathes and have practiced keeping it quiet, the next thing you should do is get some help. You’re going to need people around you to provide an atmosphere of calm, sensibility to help prevent you from following in the of so many others who came into great wealth only to be flat broke a few years later. It’s a pretty good idea to surround yourselves with a team of experts with experience in a wide array of subject expertise such as investment management, tax mitigation strategies, estate planning, retirement planning, etc… You get the picture.
In terms of investment management, it’s pretty easy to be seduced into putting your money in risky schemes that promise to create even more ginormous wealth. Even more, there are plenty of forked tongues out there whispering this message. The truth is that putting much of your money in very conservative investment options is going to yield you more than $8-10 million a year. There’s really no need to put your money into risky ventures.
In fact, you should invest this money as if it were part of an endowment, foundation or life insurance reserves subject to a stringent set of rules with which you have to comply. Doing so means you won’t throw the money away on a litany of opportunities fraught with all manners of risk. The first thing you want to do is HANG ONTO THE MONEY YOU JUST GOT!! If you need validation, just follow Warren Buffet who is known for many wonderful and common sense quotes, one of which goes loosely like…
“It’s not how much money you make, it’s how much money you keep and how hard it works for you.”
There are a number of surveys detailing what happens to the money that lottery winners get, and depending on whose data you choose to believe, somewhere between 75%-90% of all lottery winners end up losing all the money within five years.
How do you keep that from happening? Follow a five-step plan:
1. Set up a Trust
Set up a trust and have an attorney you trust (yes, pun intended) accept the money for you to preserve your anonymity. (Hint, hint – this is part of the keeping it quiet strategy.)
2. Treat Yourself (a Little)
Whittle out a small piece (not more than 2-3%) and go on a spending spree. In the case, of $700 million dollars, that’s going to be in the range than $6-9 million depending on the state you live in and assuming you choose the lump sum distribution as opposed to the annuity. (I used the lump sum model and since I live in Missouri, I used the Missouri state tax table to calculate a beginning sum of $314,743,000)
3. How Much Do You Really Need a Year?
Decide what your annual income needs to be. (Let me strongly suggest that your annual income needs to be whatever interest you earn on a conservative investment portfolio.) As indicated above, even at yields of 2.5-3%, you’re going to generate $7.8 – 9.4 million every year. And, if you choose wisely, you can earn this money using vehicles that generate a tax burden of somewhere in the 11-15% range.
4. Pay it Forward
In fact, Pay it Forward is one of my favorite movies. My wife is a big believer in the adage of “paying it forward”, and like most husbands I sometimes listen to my wife. You just became the beneficiary of awesomely good fortune. So…consider allocating a large “chunk” to philanthropic causes that are important to you; structure a charitable foundation of some sort (you’ll need help with this) and get busy “paying it forward” using the interest that the foundation generates every year from the endowment.
5. Don’t Touch!
Finally, direct a significant portion of your winnings to a structure you can’t touch without causing yourself some significant pain. It’ll keep you from doing some foolish things.
You just won $700,000,000 (well…sort of)! I know you may want to party and “trumpet” the news all over, but it’s a bad idea. Be discreet, be careful, be generous and live a great life. (And if by chance you are the Massachusetts winner, feel free to give me a call!)
This information is not intended to provide specific tax, legal or business advice and may not be relied upon for the purpose of avoiding any tax penalties. Lewer Financial Advisors is a multi-state registered investment advisor domiciled in Missouri. Lewer Financial Advisors is a member of the Lewer group of companies.