Have you ever thought about what to do if you won the lottery jackpot? Would you take the necessary steps to manage your finances effectively? Some winners set up a lottery trust which is something you should consider along with hiring a tax attorney and financial advisor.
You’ll also need to know the different types of trusts available to you and how to claim your winnings through them. Ideally, you’ll want to consult an estate attorney to help you draft your trust. You’ll find valuable information about all these details in this post. Keep reading to find out more!
What is a Trust For Claiming Lottery Winnings?
Creating a trust is one of the smartest strategies when winning the lottery. Some lotteries have rules where they must release a player’s name and where they live. But you can maintain some anonymity by claiming your winnings through a lottery trust.
Trust is a form of security when you’re dealing with the onslaught of strangers, family members and con-artists who are trying to take your money. You can set up your trust through an estate attorney and only you can claim money from it as a trustee. Your beneficiaries can also claim money through a trust.
What Kinds of Trusts Are Available to Lottery Winners?
There are two types of lottery trusts available to winners: Revocable and Blind trusts. It’s important to know the differences between these two trusts so you can choose one that suits your requirements. In this section, we’ll discuss these two trusts in detail and what their advantages are.
Before turning in your lottery ticket you can set up a revocable lottery trust with your estate attorney. With this type of trust, you choose a trustee to manage assets moved into the trust. The trustee will be responsible for acting on the terms of the trust. As the trust’s creator, you’ll be known as the grantor.
On the other hand, you can name yourself a trustee so you can have full control over your assets. As the grantor, you have the right to change the terms of the trust throughout your lifetime. The only downside to the revocable trust is that it doesn’t keep your identity secret when you win the lottery.
Revocable Trust Advantages
Revocable trusts have multiple advantages. After creating your trust, you can hand in your lottery ticket and the money will be paid directly into the trust. This helps you avoid significant tax issues. You can also use your trust as an estate planning tool.
You can add beneficiaries to your trust so they can inherit the money when you pass away. Essentially, the revocable lottery trust gives you plenty of flexibility to manage your winnings.
Blind Trust 101
A blind trust 101 has similarities to the revocable trust. You can decide who the trustee and beneficiaries are. Additionally, you can name yourself as a beneficiary but you’ll hand your lottery ticket over to the trustee who is usually a lawyer. The trustee will have complete control over how the winnings are managed.
Blind Trust 101 Advantages
Through a blind trust you’re able to keep your identity secret when claiming your lottery winnings. You also retain the right to revoke the trust if you’re not happy with the management of it. Furthermore, the trust helps you avoid conflict of interest between trustees and beneficiaries.
How to Create a Trust to Collect Your Lottery Winnings
If you don’t have experience with drafting trusts then you’ll need professional assistance. You want someone to assist you who has experience in estate and trust laws. Here’s how you can create a trust to collect your lottery winnings.
Hire Lawyer or Planner
It’s legal for you to create your own trust. However, it’s best to allow a lawyer to draft the trust for you because they have knowledge and experience with trusts. You can hire a lawyer through a licensed law firm so you know you’re dealing with a professional who can guide you through the process.
On the other hand, you can also hire a financial planner who can help you make a decision on whether you should take the annuity or lump sum payment. The reason for hiring a lawyer or planner is because there are taxes and estate-planning laws that require a professional’s advice and guidance.
Consider the Options
Consider your options when looking at the two trusts that are available to you. As the creator of the trust you reserve the right to:
- Pick who your trustees and beneficiaries are
- Decide who manages and oversees your assets
- Choose who will adhere to the trust agreement
However, you will need to choose a trust that you know will benefit you and your beneficiaries in the long run. Your lawyer will give you advice on which trust will be the better option for your financial safety.
Draft Your Trust Agreement
When drafting your trust agreement, it must meet the laws specific to your jurisdiction. You must clearly define the terms of your trust and you must name your trustees and beneficiaries. Depending on the laws in your country you must sign the trust agreement before publishing it. You may also need a witness to sign the agreement too.
Claim Your Lottery Winnings
Now that you’ve created your lottery trust you can now open up an investment account or bank account in the name of the trust so it can hold the money from your winnings. If you create your trust before claiming your winnings you can claim your prize as a trustee instead of an individual winner.
Laws About Trusts
Each country will have their own laws and procedures that govern lottery jackpot winnings. For example, there are some states in the US such as Pennsylvania that prohibit blind trusts from claiming prizes. However, they will allow other trusts to claim prizes. Your lawyer will help you with the laws and regulations about the trust you choose.
Taxes When Using a Trust To Collect Lottery Winnings
Lottery jackpots come with a sizable tax obligation in some countries. Other countries such as the UK don’t tax lottery winners. However, in the US lottery winners are charged state and federal taxes when they win the jackpot. It’s important to understand the tax on lottery winnings in your country especially when it comes to trusts.
There is a federal gift tax which is a limit to the amount of money you gift someone tax-free. Certain types of money can be tax-free such as if you give money to a spouse or charity organization. When you die the trust doesn’t have to go through probate but the assets will be subjected to estate taxes.
A lottery trust is an excellent way to manage your winnings and to keep them safe. As the trustee, only you are allowed to claim your lottery winnings from a trust if you choose the revocable option which gives you plenty of flexibility. However, if you choose the blind trust your trustee will have control over how to manage your finances.
It’s advised that you hire a lawyer to assist you with drawing up your trust so that you adhere to the laws in your country. By setting up a lottery trust you can state who your beneficiaries are so they’ll get your money in the event of your death. It’s also an excellent way to prevent yourself from overspending. Use this article to help you choose the right trust for you.
What kind of trust is best for lottery winnings?
This will depend on your preference and if the trust is legal in your country. The best trust to choose if you want to remain anonymous is the Blind Trust 101. If you want more control over your finances then a revocable trust will be best suited for you.
Which states allow a trust to claim lottery winnings?
Only six states allow winners to form a blind trust where they can claim their prizes anonymously. Revocable trusts are legal in all states but the laws governing the trusts may be different.
How can I hide my identity after winning the lottery?
If it’s legal in your country you can hide your identity by claiming your lottery winnings through a blind trust. Or when claiming your prize, you can wear a disguise to hide your identity such as sunglasses, a big hat, or a mask.