22 May 2023 , 17:50
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For most people, playing the lottery is statistically a bad bet but even winners of large lottery prizes may encounter financial complications and tax responsibilities, which many are not equipped to handle.
A lawyer has offered advice on how people, who find themselves with an unexpected fortune to manage, can make the most out of their earnings.
Firstly, upon winning, most lucky lottery champions are faced with a big decision involving two options.
They can either choose to receive their winnings as a lump sum or get annual payments for 30 years.
Kurt Panouses, a lawyer who advises winners of big lotteries, suggests considering the option of taking the lump sum payment instead of annual payments over 30 years.
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Kurt Panouses has been dubbed the Lottery Lawyer after representing clients who won billions (NBC26)Mr Panouses believes that the tax system is likely to change over three decades, and rates may increase.
By taking the lump sum, winners can pay the current tax rate (37 percent) all at once and avoid potential future tax hikes.
“The 37 percent you pay now in 2023 ...is really a low income tax bracket,” Mr Panouses told the Washington Post.
'All their issues go away with this ticket with six numbers on it and they're not thinking clearly' (Getty Images/iStockphoto)He predicted that the rates would increase in the next three decades, making a lottery win even more valuable.
“That’s a big reason why a lot of people will take the lump sum all in one year and be done with it. You pay 37 percent and you’re done,” he said.
Financial decisions can be challenging at first, he said: "They’re thinking about what they can do with this money.
"All their issues go away with this ticket with six numbers on it, and they’re not thinking clearly any longer.
Financial decisions can be challenging for winners of big sums (Getty Images)And added: "It’s difficult. But at the same time, it’s so easy for them.
"They wake up in the morning and they just go, ‘I don’t have to do anything today,’ and that’s a good feeling."
Mr Panouses also emphasised the importance of estate planning.
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If the winner doesn't spend all the money in their lifetime, the remaining amount could be subject to estate taxes.
To mitigate this, Mr Panouses suggests setting up a trust to distribute the winnings among family members while the winner is still alive.
Although the relatives will pay income taxes on their share, the overall estate tax burden will be reduced.
Ultimately, despite the financial complexities, winning the lottery can provide a sense of freedom and the ability to handle emergencies.
However, for most people, playing the lottery is statistically a bad bet, and it's crucial to understand tax obligations on gambling earnings, even from smaller wins.