How Does Winning the Lottery Affect Your Florida Estate Planning?
There is always a great deal of media attention paid to large lottery jackpot winners. For instance, a Florida man recently claimed a lump-sum Mega Millions prize of nearly $282 million–actually $211.4 million after federal income taxes are withheld. While many of us would greet such a windfall with excitement, sudden wealth of any kind should also prompt a careful examination of your financial and estate planning.
Should You Put Your Winnings in a Trust?
One of the first decisions you need to make when dealing with sudden wealth is whether or not to create a separate legal entity to manage it. It is generally a bad idea to deposit a $211 million check straight into your personal checking account. And what do you do if you agreed to split your good fortune with other people? This is where careful estate planning can help.
Many lottery winners choose to create a trust or, in the case of multiple winners, a general partnership to actually receive the payout. In fact, the Tampa-area man who won the recent Mega Millions did just that. Lottery officials told the press the $211 million would be paid to a trust, with the winner serving as the “managing member.”
With a trust, you name yourself as a trustee to manage the winnings during your lifetime. Upon your death or disability, a successor trustee you name assumes control of the trust. This provides a seamless transition as trust assets do not fall under Florida probate laws. Trusts are also private, whereas a will must be probated in a public court proceeding, which can be helpful for wealthy individuals who wish to keep a low profile.
Of course even with a trust, you will still need a legally executed will. A large percentage of Florida residents never bother to make a will, especially when they do not own many assets. This can be a problem if, say, you win a lottery jackpot and die the next day in a car accident. Absent a will, that money would go to your next-of-kin as determined by Florida law, which may not reflect your wishes.
Beware of Tax Issues
Aside from the large amount of income tax withheld from a lottery jackpot, there are other tax issues that need to be addressed. In the context of estate planning, this includes gift and estate taxes. The estate tax is a levy against the total value of a person’s property at the date of death. Good estate planning can help delay or minimize potential estate tax liability, once again primarily through the use of trusts.
The gift tax, in contrast, applies to money you give away while you are still alive. Many lottery winners naturally want to help out their family and friends. But under federal law, such gifts may be taxable. The current gift tax laws only exempt gifts of up to $15,000 per recipient each year, except gifts to spouses, which do not incur tax liability regardless of the amount.
Addressing Sudden Wealth in Your Estate Plan
Obviously, winning the lottery is something most of us will never have to deal with. But there are plenty of other circumstances where you may find yourself the beneficiary of sudden wealth. Perhaps you received a large settlement from a personal injury lawsuit, sold a business, or even received an inheritance from someone else’s estate or trust. Whatever the source of your newfound wealth, it is important to review and revise your estate plan accordingly. If you need assistance from an experienced Fort Myers estate planning attorney, contact the Kuhn Law Firm, P.A., at 239-333-4529 to speak with a member of our team today.