Last night, someone (or a group of people) won the $1.6 billion Mega Millions jackpot. For those who use their winnings wisely, they (and their descendants) will live very well for the rest of their lives. Those who don’t will end up in a worse financial position than before. Lottery winners, as a member of the nouveau riche, generally don’t know how to deal with newfound wealth and the problems that the wealthy have to deal with. So to minimize the chances of being exploited, they are advised to talk to a financial advisor, an accountant, and a lawyer before cashing the ticket. Here are some ways lawyers can provide assistance and guidance to lottery winners and I have divided them by specialty.
Bankruptcy – I hate to start on this topic but studies have shown that most lottery winners end up being broke due to financial mismanagement. They get into excessive debt due to lavish conspicuous consumption, bad investments, compulsive gambling, and excessive generosity, to name a few. So they will need someone to help them settle debts or file bankruptcy to help them get a fresh start. The problem is that these people will come to you with massive debts and may not have any of their lottery winnings left to pay you.
Privacy – Some people will enjoy the fame of being a lottery winner. But others (including myself) will want to keep as much information as secret as possible. Almost every state requires the disclosure of the lottery winner’s name and it will only be a matter of time before someone finds out where they live and work. These people will want to know how to prevent solicitors, private investigators, and stalkers from finding out where they live, where they work, and what businesses they own. They may also want to know how to keep their financial information secret, even if it means establishing bank accounts offshore.
Business Transactional – Most lottery winners will want to invest their winnings in a business or in multiple businesses and their level of involvement will vary. They will want to know their rights and responsibilities as an entrepreneur, a manager, a general or limited partner, or as an angel investor. They will also want to know whether they should form a corporation, a limited liability company, or some other entity. They may also need to be counseled on relevant employment laws if they plan to hire employees.
But most importantly, they may rely on you to review a business plan to see if it is legal, not fraudulent, and is potentially viable in the long run.
Criminal Defense – Those who experience sudden wealth will not only feel financially independent but also invincible. And some of them may take things too far because they think they are above the law. Researching online will show that lottery winners have been convicted of assault and battery, DUI, drug trafficking, and even murder.
Also, lottery winners may also be willing to pay for the legal defense of a friend or family member.
Litigation – A lottery winner automatically becomes the “deep pocket.” This means that there is a good chance that they will be sued. Sometimes, there may be valid causes of action. For example, ex-partners in a failed business venture may sue to recoup their investment and other damages. Other lawsuits will be phony. And others will be in between where one person’s interpretation of an event differs from the other. The lawsuits may involve dubious claims of emotional distress, battery, and sexual assault, usually with no corroborating evidence and sometimes with so-called witnesses who are willing to lie in court. The plaintiffs may be gambling on a sympathetic judge or jury who would want nothing better than to stick it to a privileged, entitled douchebag who became an overnight billionaire by pure luck.
A lottery winner should be advised to have a litigation lawyer handy and in some cases, have calls and inquiries directed to that lawyer as it might discourage the filing of frivolous lawsuits.
Alternatively, a lottery winner will be the plaintiff who is now in a financial position to sue. Or they may be willing to pay to fund a family member’s lawsuit.
Family Law – The lottery winner will typically want to see a family law attorney in two cases: the moment they are considering marriage and the moment they are considering divorce. If the winner is single, he or she will likely want a celebrity-grade pre-nuptial agreement drafted for his or her soon-to-be spouse to sign. If the winner is married, they will want to know what will happen to their winnings in a divorce and how to protect as much of the winnings and assets as possible. Some winners may even want to know how to legally keep the winnings away from their spouse.
Estate Planning – For those people who plan to spend their lottery winnings responsibly, they will need to set up an estate plan. The structure should avoid or minimize estate and gift taxes. Perhaps they want to set up charitable remainder trusts or special needs trusts for disabled family members. And they will want to appoint trusted people to manage their estate.
Tax – Lottery winnings are taxable income and generally little can be done to reduce the income tax bill on the winnings. However, they can advise winners on the tax consequences of taking the lump sum versus the annual payments.
But as mentioned above, many lottery winners are likely to invest in businesses. A tax lawyer can help the winner set up the most tax-efficient plan for their ventures and provide guidance on minimizing taxes in the future. Also, since lottery winners are likely to engage in high-dollar transactions, their tax returns have a bigger chance of being audited by tax authorities and they will need a tax professional to represent them.
If they plan to give money to family and friends, they should be aware that their gifts can be subject to tax. The should know about the annual gift tax exclusion, what gifts are not subject to tax, and the lifetime gift tax exclusion amount.
Finally, if the lottery winner loses everything and is also stuck with a large tax bill, a tax attorney can help them settle their debts. Or at the very least prevent the tax agencies from seizing their bank accounts, their homes, and their assets.
I will close by asking how one can find lottery winners as clients. Because of the very high odds, there are very few lottery jackpot winners. So the odds of getting such a client seem just as high as winning the jackpot itself. But if you look at most of the lottery winners, they are ordinary people who just got very, very lucky. These people probably don’t know any lawyers and will start asking around. So the best advice is to be nice to everyone you meet because you never know who will win the jackpot. Or you may want to write an article or a blog post about how your law practice can help lottery winners adjust to their new way of life. After all, what do you think last night’s lottery winners are doing right now?
Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at [email protected] and via Twitter: @ShanonAchimalbe.