Newbie Billionaire By Way Of The Lottery? Next Stop: Your Own Family Office

You’ve won the lottery, and it was a “B”iggie, as in “B”illions of dollars. Now what?

The holders of two tickets faced that question last week. On Jan. 22, in Michigan, a Mega Millions ticket hit the jackpot at $1.05 billion. Two days earlier, on Jan. 20, in Maryland, a winning Powerball ticket rang up at three-quarters of a billion dollars.

If you are the one holding a winning ticket, a BILLION thoughts must come to mind. If this is the first time you have won a big lottery – and I’m guessing that it is – you DO NOT want to blow this. How can you best handle this opportunity – a chance of 1 in more than 300 million for the Mega Millions jackpot – without making costly mistakes?

Your First Step

Let’s break this down into phases. 

Phase 1 is what to do NOW.

For starters, you need to sign the back of your ticket and put it in an ultrasafe place.

Then, think about how famous you want to be. Do you want everyone to know that you won this big amount? You might not be able to avoid it. For example, a spokesman for the Michigan Lottery told The New York Times

NYT
that “Michigan law requires that winners of games played across states, such as Mega Millions and Powerball, be publicly identified.” However, in Maryland, the Powerball winner can remain anonymous.

Give that some thought; consider setting up a trust to preserve anonymity. You’ve got some time (check to be sure) before you need to claim your winnings. For example, if you bought your ticket in Michigan, prizes must be claimed within one year of the date won, according to the Michigan Lottery website,

In the meantime, you might want to keep quiet about it, even with friends and extended family, while you work on your next, crucial phase.

Your “Family Office”

Phase 2 is what to do next.

I’ve just spent some time reading about lottery winners. All the articles are well-meaning and helpful indeed. But, here’s the real scoop.

You should not go hire a financial adviser and a lawyer and a tax accountant, as just about all the writers advise. Instead, with hundreds of millions of dollars in after-tax winnings, you don’t need a randomly assembled team; you need a machine. What kind of machine? The kind that your peers (very wealthy people) have. The machine is called a “family office.” 

A family office is your own personal firm that handles all things financial for the very wealthy – everything from investment management to bill paying to tax planning to funding charitable causes.

Your family office will be staffed with your own full-time CPA, tax lawyer and money manager. They will be charged with organizing your new financial life. You will not be searching for what stocks to buy on your own. You will not be reading about how to save taxes or fund your favorite charity on your own. You will have your own personal family office experts in charge, with the goal of making your life as easy and safe and productive as possible.

Resources

To start exploring, check out the Institute for Private Investors. According to its website, “Families of substantial wealth rely on IPI to provide a safe harbor where they can learn from each other and leading experts, while fostering lifelong relationships with like-minded peers.” (Full disclosure: I am a former professional member of IPI.)

What Not To Do

There are many mistakes lottery winners make, just like others who suddenly come into great wealth.

The Journal of Accountancy cautioned about loaning money to family and friends, and pointed out the problems with making decisions right away and not thinking long term. Forbes encouraged lottery winners to live within a budget and avoid sudden lifestyle changes.

CNBC brought up two errors made by previous lottery winners: Don’t lose your ticket, and don’t carry cash around.

USA Today listed a number of things not to do upon winning a multimillion-dollar lottery, including telling everyone you know that you are a winner, which makes you a target for people seeking money (and possibly puts you in personal danger); buying everything for everyone (or yourself); and backing the business ideas of friends and family.

What To Do

Avoiding mistakes is just the beginning. The ending of your story as a lottery winner needs to be a happy one. Here is the wisdom of the owner of the store that sold the winning Powerball ticket in Maryland, who told The Associated Press: “I just hope whoever has won it uses it wisely and that other people benefit from it.”

Now, that’s the best advice that any lottery winner can benefit from. Newfound wealth can lead to disaster. Properly handled, it can and should lead to a happy ending where many can benefit.   

Lottery Experience

If you’ve won the lottery or acquired newfound wealth, and want to share your experiences with me anonymously, write to me at forbes@juliejason.com. Likewise, let me know if you need help researching how to set up a family office. I’ll be happy to write a column about how to do that.