What would you do if you won the lottery... and
What would you do if you could do it all again
So I think that all of us have, at one point or another, imagined what it would be like if we could go back and do it all over again. If you suddenly found yourself once again a young child but with all of your adult memories. Girls you would have dated (or would have definitely NOT dated), jobs you would never have taken, opportunities that you would make sure not to loose. It’s definitely fun to consider but also not likely to ever happen. But one of my thoughts has always been: “well its fun to think about but if you only had a couple of seconds to react before it happened what would you do? What would you try to take with you?”
One of the benefits from going back in time would probably be financial: knowing what to invest in when. The weakness, it seems, comes from having a funds to start with when you arrive. In most cases it takes money to make money. Yes, you’ll know major events such as stock market crashes, who wins major sporting events, invest in Apple, and the like; all of which provide you opportunities to make money... if you have money to start with.
So, if you suddenly feel the hooks of temporal displacement latching into you... here is a nice summary to quickly print out and take with you. Please reward my efforts here by sending me just a few of the millions when you make it to uber wealthdome.
I think your best strategy is to earn a huge single jackpot in a seemingly ‘random’ chance and then stay completely away from gambling there after. The guy who guessed right at the Triple Crown once or wins a single lottery is just a luck guy (most will replace ‘guy’ with a dirty expletive of their choice).
The fellow who is constantly winning at long odds betting on sports events is likely to meet some very nasty people in a dark ally one night. The gal who is always buying and selling on the stock market at the right time is likely to end up with the SEC moving into their home with them. So, our best bet is to go for one large payout and then manage the resulting funds responsibly but casually so that you can go about enjoying your second life.
Gambling on known events of course is one way to make your fortune. Your tip here is that the horse Arcangues won the November 6, 1993 breeder’s cup at 133-1 odds. But I would stay away from gambling. Most of it is illegal and almost all of it involves people who you probably do not want mad at you, and winning large sums of money off them usually is a sure way to make them mad at you. Additionally, most gambling usually requires you to have some decent money already to make a real killing. Did you have a million dollars in 1993 to bet on Arcangues to begin with? No?
So I think your best bet is the Lottery. Yes, still gambling but you don’t need a million dollars to make hundreds of millions of dollars and its money from a state bureaucracy who is not likely to come to your house in the middle of the night and demand it back while they pull your fingernails out... they just demand it back each April 15 with enough paperwork to make you want to pull your own fingernails out.
WINNING THE LOTTERY
A common mistake I hear from other people thinking about going back in time and winning a lottery is they are planning using the winning numbers. You don’t want the numbers that DID win, you want the numbers that would have won but didn’t! You want the numbers that would have won had anyone used them but nobody did. Otherwise you end up splitting the pot with someone else. www.allotto.com has lists of all the winning numbers. So if you look at historically who actually won a lottery and then use the numbers from the drawing before that one, you’ll get the biggest payout.
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With a bit of poking around here is what I found. I’ve included the three biggest jackpots that weren’t won. I also put two nice Florida jackpots there because early 1990s would have been right after I turned 18 and could legally win a lottery and Florida doesn’t have income taxes which would be nice if you suddenly found yourself with a few million in income. The first line lists the day, lottery, and amount that was actually won. The second, parenthetical line lists the date and winning numbers for a drawing or two before the winning one - where nobody won and its all waiting for your.
January 4, 2011 Mega Millions 240 million
(December 28, 2010 – 6, 18, 36, 40, 49, Mega 7, Megaplier 4)
March 6, 2007 Mega Millions 234 million
(March 2, 2007 – 14, 21, 33, 35, 51, Mega 43)
December 25, 2002 Powerball 314 million
(December 18, 2002 – 2, 14, 33, 50, 52, Powerball 22, Power Play 5)
September 15, 1990 Florida Lotto Jackpot 106 million
(September 1, 1990 – 34, 29, 31, 46, 26, 4)
November 10, 1990 Washington State Lotto 12 million
(November 7, 1990 – 01, 06, 21, 29, 45, 49)
SO YOU’VE WON THE LOTTERY
So you’ve won your lottery! What do you do with it? After a bit of internet browsing I found these guidelines from other lottery winners:
1) Keep quiet. Don’t tell anyone until you actually have the money. People, even friends and family, will actually try to rob you or kill you for the ticket.
2) Read carefully all instructions for claiming your prize on the lottery ticket and on the responsible agency’s website. Sign your name on the back of the ticket, unless the rules forbid it. Make a photocopy of the front and back of your ticket, and deposit the original in a safety deposit box in a reputable bank.
3) Contact a lawyer immediately to weigh your legal options regarding the winnings. There are many attorneys that specialize in helping people who came into large amounts of money in a short period of time like a lottery, inheritance, time traveling event or other unexpected gain. They will know how to set you on the right path.
4) If allowed in that state, form a Blind Trust with your attorney to collect the money in the name of the trust and maintain your anonymity. But be careful, blind trusts are blind from both directions. Only the Trustee you assign will be able to see and touch the money, which increases the risk of mishandling of the funds. Use the blind trust to receive the money from the state and move it immediately to your managing trust or bank account. In this way if you do not receive the money expected immediately after it is expected you are alerted to a potential problem.
5) Establish a second trust of some sort (the type depends on what you want out of the trust) to actually hold and manage your money. Do not use the same managing as the blind trust. The blind trust helps keep you anonymous, the second trust helps protect the assets once you have them.
6) Plan for getting only 35-50% of the money initially. A lot of the money to go to taxes, legal fees, and other expenses. It may be less but plan for at two-thirds initially if you take a lump sum payout or half if you take the annuity option.
7) Lump-sum, Annuity, or mix? Some lotteries only offer an annuity option but others offer a smaller lump-sum immediate payout. Which should you choose? Its a complex question you should go over with a financial planner. A lump-sum will have higher taxes and a risk that you will loose the money in investments that don’t go well or will spend the money to quickly. The Annuity pays more over time unless you invest very well, but unless the State adjusts the payments for inflation your payments could loose almost half its buying power towards the end of the annuity. Also, check to see if the state allows the annuities to have a beneficiary, so if you die before receiving the full payout the rest is not lost. Since your a time-traveler and so have some advantage in knowing what future stock trends are going to be a Lump-sum payout will probably be best unless you really aren’t good at managing money and staying out of debt. Otherwise the annuity is probably the best option.
8) Establish your Team. With the aid of legal counsel, form a team with a reputable lawyer (you almost certainly will have multiple frivolous lawsuits coming at you), an accountant and financial advisors as soon as possible. There are vast areas of finance (insurance, securities, estate planning, taxes, etc) and you will need to carefully consider what size and type of financial team you want working for you. Do you want a generalist that will do most of it for your or several specialists to split up the job.
9) Remember that when dealing with small banks, go straight to the VP or upper management. With larger, national banks, go to their Private Banking or equivalent division for customers with great wealth. They may have more options when it comes to banking, and have a better grasp of the disclosure and security procedures of the bank. Oh and if your going back before the mid-80s remember the S&L crash. Pick a bank you know is going to be around all the way to the time you left.
10) Give yourself a modest initial spending spree and then sock the rest of it away so you can live on the interest.
11) Do NOT quit your job unless it makes you miserable. You are now very wealthy, however, you will need something to keep you busy and keep you from spending all of the money. Try to work part-time, and file a leave of absence, or if you are sure of your company’s financial status, consult a lawyer regarding making you a silent partner. Try to keep people at work from finding out about your winning: there will almost certainly be resentment from co-workers and you will likely loose promotion and raise opportunities if its known.
12) If you were miserable at your job, do quit, and go back to school or try for a new job. Do NOT buy a company out of spite. It will still cost a substantial amount of money. Just quit gracefully.
13) Make the recipients of your gifts sign confidentiality agreements regarding the disclosure of your gift for at least five years. Otherwise you will find many other people, having heard of your generosity, coming out of the woodwork with their hands out.
14) Invest, invest, invest. Diversify your portfolio, but have a cap on risky investments. Consider safer routes, such as a retirement plan, time deposits, certificates or money markets. As a time traveler you have a major advantage here but be careful. Don’t go buying and selling right at the perfect times to maximize your investments. Do that to often and the SEC will start watching you VERY closely. Instead buy in early on companies you know are going places. Disguise it with some buy ins in companies that aren’t going anywhere. Knowing how interest fluctuated over the years will also let you know when to buy things at fixed rates. Remember that the Dot.com bubble burst March of 2000 and the sub-prime mortgage bubble in October 2007. Gradually get out of the market before those months (which are also good months to get into CDs or other fixed rate investments). Start to buy back in around October 1987, October 2002, and March 2009. Oh and if you ever get a chance: Early 80s, especially October 1981 CDs had an interest rate of over 15-16%; how ridiculously great would it have been to realize what that meant back then.
15) Learn the ropes. Learn your state and federal laws about lottery winnings and coming into wealth suddenly. Take tax, CPA, investment, and legal classes. Ask your local credit union if they need another volunteer board member, an excellent place to keep yourself busy and learn what you can, should, and shouldn’t do with your winnings.
16) Lie low. Keep your old friends close. This will keep you or anyone else from getting kidnapped or getting mugged. There is no need for a press release, you don’t need the publicity. You can live comfortably without raising suspicions. If people question where your money comes from point them to one of your more modest investments.
17) Buy smart and maintain your habits. You may have enough money to buy a small country, but you still have to run that country. Consider the additional expenses involved in buying an acre of house or a fleet of expensive cars (taxes, utilities, maintenance, etc). Set yourself up so you are nice and comfortable then sit on the rest to let it grow and keep care of you. Nothing will drive your family and REAL friends away quicker than becoming a monster flinging money around to get your way.
18) Be humble. Remember always: you did not earn this money, you won it in an improbable game. Do not be a nut about getting rich. This is like anything else in life. If you spend a little time planning, get some help when needed, and use moderation, you will do just fine. Do NOT let money become the main topic or issue between you and your friends, family, and extended family.
19) Use your money for a purpose. It often shelters some of the winnings from taxes, makes you feel better, and is a good thing to do. But find solid national charities and donate carefully with legal advice. Read Ami Domini’s The Challenges of Wealth. It was a groundbreaking study of sudden wealth.
20) Don’t spoil people. It is better to give people opportunities than money. Give your children good educations, endow scholarships and fund charities that provide opportunities to others. Like rotten food, spoiled people are not pleasant to be around.
FINDING AND WORKING WITH A LEGAL/FINANCIAL TEAM
1) First, find yourself a good lawyer that specializes in people who have come into a lot of money suddenly. These guys will know all the common traps and pitfalls you face and will get you on the right path.
2) With the help of your lawyer build a financial team. You’ll need at least:
2.1) An accountant to track, record, and report what your money is doing
2.2) A financial advisor(s) to handle
2.2.1) tax planning
2.2.2) insurance
2.2.3) estate planning
2.2.4) investments
2.2.5) retirement
2.3) Other lawyers as needed, you need legal help for:
2.3.1) taxes (filing, audits, etc)
2.3.2) setting up trusts or other asset protection tools
2.3.3) protecting you from frivolous (and not frivolous) law suits
2.3.4) making sure your not breaking the many, many laws about
all this that you don’t even have the slightest clue yet even
exists yet.
3) Finding good people for your team
3.1) Find an independent advisor from a trustworthy source. An
independent advisor is one who can offer many products from
many companies, and who has no assigned sales quotas. A referral
from a trusted friend or relative normally works best, but most of
your fiends and family won’t be working with financial planners
geared towards multimillionaires and working with huge sums, so
you may need to find out who is considered reputable by the
wealthy in your area. Don’t concern yourself overly with
credentials. While education and training are important, loyalty
and integrity are much more critical.
3.2) Look for a comprehensive approach. Use an advisor that uses both
market and non-market options. Life, disability, and possibly long-
term care insurance should be the first priorities in most financial
plans.
3.3) Meet with the advisor. He will want to establish a sense of trust.
Consider carefully how he goes about this. Is he confident? Does
he seem to know what he’s talking about? Does he seem to care
about me? Does he try to offer options before he fully understands
the problem? Is he flashing around names, titles, and credentials as
if that is all he is?
3.4) Be informed. Read a book. Take a class. Subscribe to Barron’s.
Subscribe to the Motley Fool website. Talk with another advisor
for second opinions.
3.5) Ten things to know in advance about your Financial advisor.
These are things you really, really should know about your
financial advisor. If you have the money but are (like me) to
timid to ask the questions directly you better hire someone to
find out for you. Remember, financial advisors are also people.
Each will have strengths and weaknesses, don’t reject one
because of a perceived weakness, or you’ll also be rejecting
what they could be bringing you. Just make sure that you are
aware of who they are, what they can do, and how they do it in
making your decision to work with them or not.
3.5.1) What experience do they have? How long they have been
in practice, the number and type of companies they have been
associated with. What is their past experience and how does it
relate to their current practice?
3.5.2) What are their qualifications? The term financial planner is
very broad. Ask them what qualifies them as a financial planner.
Find out if they are a Certified Financial Planner (CFP), Certified
Public Accountant-Personal Financial Specialist (CPA-PFS), or a
Chartered Financial Consultant (ChFC). What professional
organizations do they belong to? Are they licensed with the state?
Are they in good standing? Do they have experience in insurance,
tax planning, investments, estate planning, or retirement planning.
3.5.3) What services do they offer? Which do they NOT offer?
Financial planning is such a vast area of complex issues do you
want a couple of different financial planners that specialize in
their areas or a generalist that covers most everything? Some
planners offer advice but do not sell the actual financial products.
3.5.4) What is their approach to financial planning? What types
of clients and situations do they normally deal with? Some
planners prefer to develop a single plan bringing together all your
financial goals. Others provide advice on specific areas as
needed. Will the planner carry out the financial recommendations
for you or refer you to others who will do so?
3.5.5) Will they be the only person working with you? Will the
planner be your single point of contact or will they be overseeing
a team that assist them and will be working with you on their
specialties. Do you want to meet or check backgrounds on his
team or his outside consultants?
3.5.6) How will you pay for the service? As part of your financial
agreement it should clearly outline how they will be paid for their
services. Typical methods include: Salary paid by the company
for which the planner works, you pay the company. Fee based on
hourly rates, flat rates, or percentage of your assets or income.
Commissions paid by the owners of products sold to you.
Combinations, such as fees partially reduced by commissions
received, etc.
3.5.7) How much to they charge? Obviously the amount will
depend on the situation but the planner should be able to give
you an estimate of possible costs based on the type of work
discussed. Such estimates should include all the elements salary,
fees, and/or commissions that will be involved.
3.5.8) Who else will benefit? It is important for you to understand
and approve of the relationship between your financial planner
and the financial services you will be buying. Does the planner
only offer advice on different products. Does he provide you
with the products. Does he receive commission for those sales
from the product owner? Is he the product owner or does he have
a relationship with the product owner? Might he sell you a less
desirable product because of his relationship with the owner?
Does that save you money?
3.5.9) Have they, any of their staff, or any of the people they will be
working with with your funds ever been publicly disciplined for
any unlawful or unethical actions? How regulates them? Check
with the relevant professional and state government agencies in
your state and in other states where they have worked. If they are
licensed to advise on or sell securities also check with the
securities and exchange commission.
3.5.10) Can you have it in writing? Ask your planner for a written
agreement that details the services they will be providing, its
estimated costs, and their disclosures.
ESTABLISHING A TRUST
One of the options often used by lottery winners is to establish a trust. Preferably, if the state law allows it, two trusts.
The first trust should be a “blind” trust. The blind trust is set up with a trustee who is not you but someone you trust (a lawyer, bank, very very good friend, etc). The blind trust is set up solely for the purpose (and it should be clear in its trust documents on this) to claim the lottery prize on behalf of an undisclosed person, named in the second trust, which it then identifies. The blind trust should receive the money and immediately distribute it to the second, trust controlled by you so you know your trustee isn’t misappropriating the funds. The trust agreement should include a clause that it can be revoked at any time.
The second trust is a normal trust of some sort (there are many, many types of trusts depending on what you want them to do) that has you as its trustee.
Trust laws are very complex and you should consult an expert. The type of trust you establish (grantor, REIT, family, simple, complex, revocable, irrevocable, etc) all have pros and cons. Also, which state to establish a trust in has important consequences. Trusts can do several things depending on what you are looking to do.
They can shield you from State (but not federal) income tax if set up in a state that does not tax trust income. They might protect your assets from lawsuits and bankruptcy if set up in a state with those laws. If you set it up to do so you can allow it to change trustees or state, which could also provide some income-tax benefits. Trusts can also provide a blind to distance you, so some extent, from the public scrutiny and the loonies that flock to lottery winners.
In most states a trust only ‘lives’ for 90 years. But several have changed their laws to allow for longer trusts. This is a great option if you want to establish a lasting legacy for your descendants. One million dollars placed in a trust that grows an average of 8% per year and makes 3% annual payouts to heirs should grow to over 130 million in 100 years.
Many state governments are rather ignorant of trusts and how they are regulated and so have loopholes in what you can do. Other states actively look to encourage trusts, as a form of business, within their borders and so offer benefits for doing so. With some careful shopping a trust can be a big asset for handling your winnings.
IN CONCLUSION: if I were to win a lottery I think I would do the following:
1) Form a legal/financial team
2) Establish a blind trust and operating trust
3) Take the annuity option for the winnings.
Each payment is made to the blind trust and immediately passed to the
operating trust which handles investing and distributing the winnings
and investment earnings.
4) Each payment is divided roughly as:
50%* reserved for taxes, fees, and related expenses.
25% invested
15% charitable contributions
10% distributed to me – this will set the minimum cost of living I’ll
allow myself, although I will probably have additional funds from a job
and from earnings on the investments this is my fall back if-all-else-fails
what I must be able to live on amount in case I loose my job the same
year that the investments have losses rather than returns. I will not allow
myself to have a lifestyle with recurring expenses (like basic groceries,
car expenses, house expenses, etc) that I cannot pay from this amount.
5) The earnings from investments would get a similar treatment with:
50%* reserved for taxes, fees, and related expenses.
25% reinvested into the principle
10% charitable contributions
5% distributed to me and used first to establish or replenish my rainy
day fund and then as my mad/play money.
5% going to a family fund for my use for things like graduation and
wedding presents, family trips, and I’ve always wanted to buy out
all of my family’s mortgages and give them 0% interest rates.
5% going to a blind endowment, which distributes funds as grants or
scholarships to friends, extended family, and worthy causes that I
don’t want to knowing that the help comes from me.
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