Won the Lottery? Do These 10 Things Before You Claim

It's everyone's favorite daydream: what would you do if you won the lottery? You'd never have to worry about money again, right?


It's fun to imagine buying a jet or private island, but in reality overnight wealth can turn into a nightmare if you're not prepared. If you are spectacularly lucky and win a big jackpot like Powerball or Mega Millions, take these 10 steps to protect yourself and your money.

Check Your Numbers

Millions of dollars in lottery prizes go unclaimed every year because players don't check their tickets. In December 2019, someone let a $14.6 million prize expire in Arizona! Don't let that happen to you - check your Powerball and Mega Millions tickets every time you play.

Safeguard Your Ticket

You must sign your ticket right away. A lottery ticket is a bearer instrument - that means that if doesn't have your name on it, anyone can sign it and claim the prize money. So if you leave the unsigned ticket behind on the counter after buying it, you may never be able to claim your winnings.

Next, make a copy of the front and back of the ticket. Keep paper and digital copies. You could snap some photos on your phone and then print out hard copies that you store in a different place than the ticket. For good measure, take a photo and video of yourself holding the ticket.

Keep the ticket in a safe location. You definitely don't want to lose it on the floor of a truck or have someone rip it up! Buy a fire- and flood-proof home safe, or keep the ticket in a safe deposit box at the bank.

Keep Quiet

Naturally, you'll be incredibly excited about your win and want to share the good news. But you need to do something tough: tell as few people as possible.

The fewer people who know about your win, the better. You need time to plan for how to manage this life-changing amount of money. The last thing you need is people asking for handouts or telling you what they think you should do with the money.

The period between your win and when you claim is the time to calmly think through your next moves. Sit down with your family and reflect on your priorities. Discuss how you can create the life you want while, most critically, making your money last.

Protect Your Privacy

Consider staying anonymous if it is allowed by your state. Currently, nine states give winners the option to remain totally anonymous: Delaware, Kansas, Maryland, New Jersey, North Dakota, Ohio, South Carolina, Texas and Wyoming.

In March 2019, the winner of the $1.5 billion Mega Millions jackpot in South Carolina chose to remain anonymous and had a lawyer claim the prize on her behalf.

In Virginia, you can remain anonymous if you win $10 million or more. In West Virginia you can keep your identity private if you win $1 million or above - but there's a catch: you need to give 5% of your winnings to the state lottery fund!

Other states allow winners to claim through a trust or limited liability company, in which case your personal details will not be made public.

A group of co-workers in Long Island, New York set up an LLC to protect their identities when they won a $437 million Mega Millions jackpot on January 1, 2019.   

In other states, your name, city, and the prize amount will be made public. Some lotteries also require you to have pictures taken or attend a press conference.

There will be reporters who want to talk to you, so you'll need a publicity plan to handle media requests. What will you share, with whom, and do you want to speak to the press directly or have someone else do it for you?

Take steps to shield yourself from the attention and requests for money. Change your phone number, set it to unlisted, and direct your mail to a post office box. If you can, leave town for a week until most of the publicity has passed.

Hire a Team

Before you claim, do your homework and start to assemble a team of pros to help you. At a minimum, you'll need an attorney who has expertise in financial issues, a Certified Public Accountant and a Certified Financial Planner.

Check their credentials and ask questions - take your time to make sure you get people who you can trust. And if you get advice that doesn't seem right to you, don't hesitate to get a second opinion.

Keep an Eye on the Clock

While you don't have to claim immediately, you should know your state's deadline. For example, New Mexico gives you just 90 days. In most other states, the deadline is six months or one year.

The deadline really is set in stone. If you accidentally miss it, there is no way to claim your prize - the money goes to the state. Typically it's spent on a mix of state spending priorities, like education, and future lottery prizes.

Choose Cash or Annuity

After you make your claim, you'll have 60 days to decide whether to take your winnings as a cash lump sum or annuity of 30 payments over 29 years.

You only get one chance to make this decision, so get your advisors to crunch the numbers and discuss the potential benefits and downsides of each option before you claim.

The advertised jackpot is based on the annuity amount, which takes into account the lottery investing the cash value of the jackpot over 29 years. If you choose the lum sum you'll receive a smaller payout, which is the current cash value of the jackpot. It's usually about half of advertised jackpot amount.

The advertised jackpot and the cash value are both estimates until the lottery finalizes the amount earned from ticket sales.

Both Powerball and Mega Millions increase the annuity payments by 5% per year. Each payment is 5% larger than the previous one, so the 5% is relatively small at first, but rises over the 29 years of payments.

For example, on a $100 million jackpot, the first payment would be about $1.5 million, and future payments would increase to approximately $6.2 million. This cushions winners against inflation.

Most winners choose to take the cash option, but which one is right for you depends on a number of factors.

The cash option gives you the opportunity to invest and grow a larger amount of money up front, taking advantage of compound interest. However, if you don't have experience managing large amounts of money, you may be better off taking the annuity for a guaranteed income. But the annuity also means that if you want to access more money because of an emergency or opportunity, you won't be able to.

Take Account of Taxes

Yes, lottery jackpots are taxable, so be prepared for the level of taxes due on your prize.

Federal taxes of 25% are withheld from the money before it is paid to you. If you choose the lump sum, you'll pay taxes on the entire amount right away. If you opt for the annuity, you'll be taxed on each annual payment. In either case, you'll have to pay taxes on any income you earn from the money.

Most players will also need to pay state taxes, although a few states - Florida, South Dakota, Texas, Washington and Wyoming - don't tax the winnings, while New Hampshire and Tennessee only levy taxes on income from dividends and interest.

If you die before the 29 years of annuity payments are over, Mega Millions or Powerball will continue to make the annual payments to your heirs, although some lotteries will pay the estate a lump sum.

However, will the annuity leave your family enough money to pay estate tax? If your heir is your spouse, no estate tax is payable until they die. But if your heirs are your children or other relatives, they will have to pay 40% federal estate tax, and possibly state death taxes, on the annuity. One option to consider is purchasing life insurance to pay the taxes.

Plan charitable donations, which can cut your taxable income in half. Any additional deductions are carried forward and may be claimed in the future. That's great for an annuity, but if you choose the lump sum payout, you might never have enough taxable income to use all the potential deductions.

Gifts to family members, including paying for education or medical expenses, are another way to reduce your taxable income.

Hit Pause

Don't let your newfound wealth burn a hole in your pocket. "Don't make any life-changing decisions for at least the first six months such as quitting your job or moving," recommends  Mark Cortazzo, a Certified Financial Planner. You can enjoy your win - in moderation: "Don't spend more than 10% of the total lump sum in the first 12 months," he advises.

Inevitably, there will be a lot of excitement and emotions involved as you adapt to your new circumstances. Family and friends will weigh in with ideas. You need time to calmly make a plan you'll be happy with long-term, and that can't be done overnight. So take a deep breath and put off the big choices until you're sure they're the right ones.

Make a Plan

Think about what you want your money to do for you. Do you want to quit your job? Travel the world? Pay for your kids' education? Get clear about your goals and determine how your winnings will help you achieve them.

Take control of your money by making a financial plan. Sit down with your advisors and figure out how much you'll have after taxes, how much income it could give you, and create a budget. If you took the lump sum, consider paying yourself an annuity based on what you expect the investment will earn on average long-term. You may also need to create a trust, purchase a different type of life insurance, and update your will.

You'll also need to decide how you'll handle requests for money from friends and family. It may make sense to appoint a financial adviser who will handle these matters to give you perspective.

Where you keep the money is also important. Reach out to your bank's senior management or private banking department before you receive the payout and find out your options. And remember that the ahead of time to discuss the best options for holding large amounts of money.

"Get it out of your checking account and put it into a special savings or brokerage account so that it's treated separated," says wealth manager Diahann Lassus, "because we all know what happens to our checking account dollars. That money kind of goes into a black hole and gets more quickly spent."

And since the government only insures each individual account for a maximum of $250,000, consider splitting the money up between different accounts and banks.

Enjoy Your Money Responsibly

Put the 10 steps above into practice, and you'll be well on your way to enjoying your newfound wealth in a way that will enhance your lifestyle and make your windfall last for the future.

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