How Does a Blind Trust Work for Lottery Winners?

By David Carnes

A blind trust is a type of irrevocable living trust in which the trustee has full authority to invest trust assets, and the trust beneficiary has no right to know what property is owned by the trust. Lottery winners sometimes use them because they help avoid many of the problems that come with winning a large lottery prize.

The Trust Deed

You set up a trust by drafting and signing a trust deed in accordance with state law. The trust deed should appoint a trustee and name you as both grantor and beneficiary. The deed should clearly state that the trust is irrevocable. You fund the trust by donating your lottery ticket to the trust before you claim your prize. To establish that the lottery ticket belongs to the trust, you should drawing up a document stating that you are donating your lottery ticket to the trust, and sign it. If you grant the trustee complete discretionary authority over trust assets, consider selecting an institutional trustee, such as a trust company, rather than an individual.

Money Management

If the lottery administrators will distribute your winnings to you in lump sum and you don't trust yourself to manage them, you can set up the trust so that funds are distributed to you over time, and grant the trustee the authority to invest trust assets without your knowledge or consent. Be aware, however, that by setting up an irrevocable trust, you may permanently lose control over its assets in favor of the trustee: if you specify in the trust deed that trust assets are to be distributed to you in periodic payments, for example, you cannot change your mind later and demand trust assets in lump sum without revoking or amending the trust. Some states allow an irrevocable trust to be revoked or amended with the consent of all beneficiaries, while others require a court order backed by legal grounds, such as impossibility of fulfilling the original terms of the trust.

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Dispute Avoidance

If more than one person will share the same prize, you can create as many trust beneficiaries as there are prize winners, as long as every winner consents to the creation of the trust. If all winners agree on the terms of the trust (the frequency and amount of distributions, for example, and the discretionary authority of the trustee), the trustee can avoid any future disputes among beneficiaries by simply adhering to the terms of the trust deed regardless of any objections made by beneficiaries.

Confidentiality

Winning a large lottery prize can cause you as many problems as it solves. If your name becomes public, you may be besieged by salesmen or requests for donations. Greedy relatives or friends may attempt to enrich themselves at your expense, and you may become the target of unscrupulous people. If you set up a blind trust, however, the trustee may claim the prize on behalf of the trust, and your name need not be made public.

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References

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