How to Create a Trust to Claim Lottery Winnings

By Tom Streissguth

Winning the lottery is just the beginning of your financial adventures. To manage that jackpot, and protect your winnings from your many new-found friends and family, a trust may be just the ticket. There are several advantages to a trust, including anonymity, asset control and professional management. There are a few steps necessary, however, before your lottery trust is legally underway.

Cashing the Ticket

When your numbers come in, your first task is to sign the ticket and secure it in the safest place available. A lottery ticket is an anonymous "bearer" instrument that can be cashed by anyone who holds it; signing the ticket gives you some protection in case it's lost or stolen. If your state gives out the names of lottery winners (as does New York, for example), you are also well-advised to stay out of the public eye as long as possible, or at least until you've set up a way to protect the money.

Lawyers and Planners

Each lottery sets a deadline for claiming prizes. Before you cash in, hire advisors. A lawyer practicing in estates and trusts can draw up the paperwork for a lottery trust, in which you appoint a trustee to manage your winnings at your direction. A financial planner will also be helpful, especially when making the decision between taking the jackpot as a lump-sum payment or spreading it out in the form of annuity payments. There are tax and estate-planning consequences to this decision that require professional guidance.

Protect your loved ones. Start My Estate Plan

Trust Details

In drawing up a trust, you must appoint a trustee -- the person responsible for managing the assets and making payments as instructed in the document. You can serve as the trustee or have a professional financial manager carry out this task. A trust also has at least one beneficiary, the person (or entity) that receives the money as per instructions. Lottery winners have been known to set up separate trusts for each of their children, or separately for family and charities. This is supposed to keep funds separate and minimize conflict between beneficiaries.

Taxes and Probate

Your lottery trust will distribute money to your beneficiaries as you direct. The trust must take into account the federal gift tax: a limit on the amount of money you can gift to any individual tax free ($14,000 in 2013). There are exceptions in which certain money is not subject to gift taxes, such as gifts to a US-citizen spouse, tuition payments, medical expenses, political organizations and charities. In addition, there is a lifetime gift-tax exclusion of $5.25 million (as of 2013). If your gift to a non-exempt beneficiary exceeds the limit and the exclusion, you will owe taxes on the excess amount. Upon your death, the trust does not have to go through probate, but the assets are subject to estate taxes -- another complex area of tax law that is best handled by a professional adviser.

Protect your loved ones. Start My Estate Plan
How Does a Blind Trust Work for Lottery Winners?
 

References

Related articles

How to Write a Last Will & Living Trust

A last will and testament sets out how your property is to be distributed after your death. A living trust, also known as an inter vivos trust, allows you to dispose of your property while you are still alive, as well as after your death. Many people use living trusts to avoid the delays of probate court and to avoid estate taxes.

How to Abolish a Family Trust & Get the Money

A family trust is a revocable or irrevocable trust designed to distribute assets among family members, typically from an older generation to a younger generation. Family trusts are popular, in large part because a properly structured trust can prevent estate taxes from being assessed on the estate of the trust grantor when he dies. The ease with which a trust can be revoked depends largely on whether the trust is revocable or irrevocable.

How to Set Up a Living Trust Fund

A trust can be a solid, safe way to send your assets where you want them to go. The grantor -- the individual who creates the trust -- places cash, investments and property under the control of a trustee, who manages the assets for the benefit of another individual or an organization. A "spendthrift" trust, for example, grants money or other assets to a minor, with the grantor setting the terms of disbursement. A "living trust" means simply that the grantor is still alive.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help. Wills & Trusts

Related articles

Blind Trust Vs. Revocable Trust

A trust is a legal structure used to safeguard assets. Revocable trusts and blind trusts serve distinctly different ...

Family Trust Planning Guide

A family trust is an estate planning tool that allows you to appoint a trustee to administer assets on behalf of ...

How to Set Up a Blind Trust

People, including judges, politicians and business executives, use blind trusts to avoid conflicts of interest because ...

Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide ...

Browse by category
Ready to Begin? GET STARTED