Claiming lottery money seems like it should be the least of your problems. However, it can get complicated. One of the most common recommendations is to claim the prize through a trust. But how do you claim lottery money through a trust?
Claiming lottery money through a trust requires several steps. First, it’s best to consult a professional and use their advice to figure out the specifics. Next, a trust agreement should be formed, and after that, you can claim the money as a trustee of your newly formed trust.
Of course, things are far more complex than just signing a piece of paper. You have to understand why forming a trust is a good choice, what kind of effect it can have on your future, and more. If you want to learn about all of this, read on.
What Is a Trust?
Before starting a trust, it’s a good idea to know what a trust is. In essence, it’s a legal institution that protects someone’s belongings — someone’s estate, whether it’s money, property, or anything similar.
People generally don’t have a trust unless they have plenty of assets. Trusts are expensive to start in the first place, so most people don’t have them. A lottery winner, for example, could benefit greatly from having a trust. Trusts generally cover the financial elements, and through a trust, your financial information will stay private.
Once you die, the trust you have formed becomes the holder of your assets, and it dispenses money and properties according to your will. There are several types of trusts. Some of them are better for lottery winners, while some of them might not work as well. More on that later.
For most people, a trust is a way to secure their assets. However, you would use it both to secure your assets and stay anonymous while claiming money. The very cost of setting up a trust will range from $1000 to $7000, and you’ll probably want a lawyer to help you set it up. They can also help you understand the intricacies and what each element of your trust means.
If you want to start a complete estate plan right away, you might also need a will, dedicate the power of attorney, etc. But this costs more as well.
Trusts can be complicated to navigate, which is why a lawyer is your best bet. Sure, it’s a big cost upfront, especially if your financial situation without the lottery money isn’t stellar, but there are numerous benefits to claiming lottery money through a trust.
Why Should You Claim Lottery Winnings Through a Trust?
Winning a lottery is probably the luckiest moment in your life. But, it comes with plenty of daunting situations. Namely, what to do with all of that money and all of the life changes that you and your family will go through.
One of the biggest elements of that is staying anonymous. While you may want the whole world to know about your newfound wealth, you should also consider keeping quiet. Being too open about it could lead to a robbery, numerous long-lost cousins knocking at your door, charities or even fake charities asking for money, entrepreneurs looking for investment, etc.
Not to mention the swarm of paparazzi that will come to your home and bother you day and night until the whole situation fizzles out.
All of this tends to get stressful because most people don’t know how to say no. While it’s okay to give some of your money to causes you care about like investments and family, you don’t want to spend all of it.
And most states share the name of the winner as public information.
With a trust, you could remain anonymous, preventing the paparazzi from learning your name, and you could hold off relatives and other interested parties for a while. A trust can also limit how much you can give to all of these causes, so it would be easier for you to say no to everyone — blame it on the trust.
A trust is a neutral party that can allow you to stay anonymous and provide help with money management. You can hire professionals to be a part of your trust and let them advise you on how the money should be spent. As a bonus, they can inform you of the tax implications you may have on the lottery money.
If you have won a lottery in a team of people who purchased the ticket, a trust could help you distribute the money. In this case, it’s best to form an irrevocable trust which would allow you to share the assets and prevent any disputes later on. This is a good thing to think about in advance if you want to prevent any issues.
Of course, to reap the benefits of forming a trust, you would have to do it prior to claiming the money. Fortunately, in most states, you have at least 90 days to claim the money, so that gives you plenty of time to organize a legal team and form a trust.
Different Types of Trusts
Before you get on the journey of starting a trust, it’s a good idea to know what your options are. There are several types of trusts, so you’ll be able to assess each of them and find one that works for you. Again, remember that you should get an attorney that could help you handle all of the legal implications of starting a trust.
A Blind Trust
Starting with a form of a trust, this one could be a controversial choice. It allows you to stay perfectly anonymous with your finances private as well. Most senators or government officials do this. In this case, a financial institution would be a trustee of your trust.
However, the problem here is that a financial institution manages your money, investments, etc. It works for politicians because they don’t know which vote on which legislation would benefit them, but it may not work well for you.
A Trust in a Trust
If you want an even better form of protection of your identity, one of the best options is to get a trust within a trust. It’s one of the best options for lottery winners, but it takes quite a lot of skill and knowledge, and you would need a lawyer to make it all easier on you.
First, you need to set up a claiming trust. This trust will claim the money, and you will give your ticket to the trust. This form of trust won’t last since it’s only there to give the prize to the Bridge trust. To make it work well, keep the claiming trust as unrelated to you as possible, giving it a unique name that no one can connect to you.
The trust will still be related to you, and the money will be yours, but you won’t be as easy to find. The claiming trust will include only you as a grantor, trustee, and the beneficiary. If you don’t want your name listed at all, you could list someone in your family you really trust, an attorney, etc. but make it an irrevocable trust. However, this means that you are giving up control of the money until it’s transferred to the Bridge trust.
It could be good, but it’s also risky if the person you list will even transfer the money to the bridge trust.
You could also set up a revocable trust, but it uses your social security numbers, which means that any reporter or anyone asking for information would be able to find out who you are. It falls under the Freedom of Information Act.
Some states allow for an LLC to claim a prize. The ticket would be owned by your LLC, and they would create a Claiming trust. This way, no one would be able to see your name but rather the name of your LLC. However, this is not possible for all states, as some require that the name of the owner of the LLC should be listed in the documents. Some states even require that your address should be listed.
An attorney could help make this road easier.
So, the claiming trust would hide who you are, and then the bridge trust holds your assets. The bridge trust will also hide your identity, but not in the way you think. By the law, no one is required to reveal any details of any bridge trust, so you can comfortably list your own name and any other information. However, name the bridge trust something that wouldn’t identify you. People can still see who is the beneficiary of the Claiming trust.
The bridge trust will hold the assets for you for as long as you need it to until you come up with a more complex plan.
Revocable trusts are trusts that mostly work for people of medium assets. The benefit of this trust is that your family can avoid probate in case of your death. But the problem is that they use your social security number, which makes it easy for people to identify you. At the same time, you can avoid this by applying for an employer identification number for the trust specifically.
A revocable trust will be the owner of your property and dispense it as per your will.
An irrevocable trust is a type of trust that can’t be revoked. It’s best if you’re planning your estate, but the moment you put your assets into a trust, you can’t get them out anymore. If you want to keep the details of your assets private, this is a good choice.
You can make more detailed instructions about the use of your estate through this trust, and you can also protect yourself from others.
This type of trust also offers an advantage of taxes. If you have one of these, a portion of your money ($11.4 million) will not be subject to taxes. If you have a partner in marriage, that amount doubles. Plus, you can give the same amounts to someone without taxes. This is one of the biggest reasons people like irrevocable trusts.
How to Form a Trust
To form a trust, you have to get an attorney. While you can do it on your own with a lot of studying and research online, you would be best off with a skilled professional who can do most of the work for you.
The attorney will create a document that forms the trust, and they will help you find all the elements necessary for your trust to work — everything that defines your trust. They will help you appoint a trustee, which will likely be you, someone as a successor of the money and the trust, and people who can be beneficiaries.
Of course, you make all of these decisions, not the attorney. They will just help you understand what each of the roles means and what is the best course of action.
Depending on the size of your estate with the lottery money, you will choose between different trust options. For example, if you mainly want to avoid taxes, you would probably get an irrevocable trust. If you want complete anonymity, the best choice is a trust within a trust.
In either case, pick a name for your trust that can’t be traced back to you. It can be something completely silly, like Trash Bin Trust, as long as no one can tell by names or numbers that it’s you. Then, you can set up an account for your trust and assign the lottery ticket to that trust. As soon as you collect the money from the prize, the account will be there to hold it.
Keep in mind that each state has different rules and regulations, so it’s best to check what the laws are like in your country. This is another reason why getting an attorney is a good choice — sometimes, the laws can get so convoluted that you won’t be able to tell what’s happening, and you might end up making a mistake. On the other hand, an attorney understands all of these laws already, especially if they specialize in this area.
With your attorney, consider elements like who will have the control of the trust, who will be the beneficiaries, and so on. You should be the trustee of your own trust. You can also name someone else, but that would mean giving up most of the control over how the money is managed.
You should name someone to replace you as well — at the end of your life, of course. You can also name several charities as beneficiaries of a portion of your wealth. If you want to name your children as beneficiaries, you will have to figure out a way to protect them from taxes and other issues. It’s best to find solutions for these things in advance, so they don’t have to deal with them. Again, a lawyer can help you with these.
Form a draft with your attorney and then execute it. Each state will have a specific set of requirements, but in most cases, you will have to state the identity of all parties involved. In the end, you might have to sign this in front of a notary and possibly even witnesses.
Once you create a trust, you can open a bank account in the name of the trust. You will have several options when it comes to your bank account, so choose wisely, with the help of a financial advisor. When you have an account ready, you should claim your prize, as a trustee and place the prize into the trust which protects you from your identity being revealed.
Does Putting Lottery Money in a Trust Exempt You From Taxes?
Winning a lottery is often a confusing time. Mostly because you expect to receive one amount of money, and you get a lot less. And this is generally because of the taxes. So, before claiming money, it’s good to call a financial adviser that can help you figure this out.
Forming a trust is a good choice either way, but you won’t be completely exempt from paying taxes on the amount of money you’ve received.
The moment you win the money, 25% of it goes to taxes. So, even if you opt to put the money in an irrevocable trust and you claim it as such, you won’t be able to avoid that 25%. You will also have to deal with taxes on an annual basis.
For example, you will have to pay the taxes based on the tax bracket you are in. If the amount of money you get is more than $500.000, or double that, if you’re married, you will have to pay 37% of that amount. Some states charge for the income tax. Even if your state doesn’t tax lottery money, you will have to pay the federal tax.
If you put your money in a trust, it will allow you to spread the money without taxes. The same goes for transferring money to someone else once you die. Still, trusts come with a ton of benefits, from anonymity to low publicity.
Trusts also share the wealth between many parties — in case of a lottery pool — and manage the funds in a way that works for everyone. With a trust, you can expect to stay anonymous as long as you want, and if someone asks for the money — family, friends, charities — just state that you can’t because of the trust.
Smart Tips for Claiming Lottery Money
Setting up a trust is one of the smartest things you can do. However, there are many more things you can do to protect yourself and your family from the press, criminals, relatives, charities, and other entities who think that they are entitled to a portion of your wealth. Consider applying these steps.
Keep Your Ticket Safe
For one, you have to protect that ticket properly. Put it in a safe if necessary, but you need to make sure it stays safe from anyone who tries to take it. In reality, anyone could take it from you and then just go to the lottery officials and claim it’s theirs. So, don’t keep it in your back pocket.
Furthermore, take a picture of the ticket, of yourself with the ticket, take videos with it and all of that. This will enable you to prove that you are the rightful owner of the ticket, no matter what. You should even sign it if it’s allowed.
To avoid any problems, keep quiet about your winnings.
Hire a Lawyer
No matter how experienced in finance or law you are, this situation is not to be taken lightly. You have to get some help because all of the excitement could result in some bad decisions. A lawyer could handle a large portion of the work it takes to claim the money, figure out a way to manage it, etc.
They can also help you set up a trust. As mentioned, trusts are great because they protect your identity, and they can even help you avoid some taxes. This way, no one will know who you are or where you live. Your lawyer will give you the best advice on what kind of trust to set up, and they will take you through the entire process. If you plan on forming a trust, sign the ticket as the trust.
Get Some Media Help
Lottery winners are always a big deal in the newspaper, on TV, and even radio. And this period will be extremely difficult for you as you will need to deal with plenty of paparazzi, interviewers and so on. All of these people can bring even more people to your door, all of them asking for money.
Media help will only be necessary if you can’t start a trust because a trust will keep you anonymous. But, if you claim the ticket on your own, you will have to hire someone to keep you safe and prevent anyone from bothering you.
Get Away From People
Many people are going to come knocking at your door during this time. They’ll be asking for money, and sometimes it will be hard to resist. You won’t even know half the people claiming to be your relatives.
Sharing all of this information with other people could be devastating for you. Publicity, pressure, and other elements that arise once you announce your win could affect your mental state — winning a lottery is a shock already — and you could spend more money on others than you care to.
You would also benefit from changing your phone number, your email address, your postal address to a P.O. box, and your location. For example, you could go to a hotel under a fictional name for a while. Prepare for what’s to come by talking to your spouse, children, and experts.
Handling all of this money will be hard for a while, so you should hire top-notch experts to help you out. Consider getting a tax accountant that can give you a better understanding of your new responsibilities, an estate attorney, a financial advisor, etc. Research if there are some attorneys that specialize in lottery winners and see if they can help.
The first decision they will help you make will be the one between a lump sum payment and annuity payment. Both have their pros and cons, but you need to understand the implications of both before making the final decision. Our annuity payout calculator can also help you out with that.
You’ll have to pay taxes right away as well, so you should consider that and ask a professional to help. You don’t want to create any trouble for yourself. A financial consultant can help you figure out what to spend money on, whether it’s investment, pleasure, donating, etc. We’ve created a lottery tax calculator, that can help you out with the taxes you’ll have to pay on your winnings.
You will retain the power to make final decisions, but it’s also good to have someone skilled to talk to about these decisions, especially when it comes to investments or charities. All of that money is a huge benefit to your life, but it won’t last forever if you are not careful. You need to plan for your retirement — or older age — as well.
Ending up without money, in the end, could be devastating to your quality of life, so it’s a good idea to plan ahead.
They can also help you minimize the amount of taxes you have to pay. With their help, form a will too. It will make the life of your family — and anyone benefiting from the money — much easier down the line.
Forming a trust is one of the best ways to claim lottery money. While it can be a bit complicated, with the help of skilled advisors, this process should run smoothly. Stay calm and stay anonymous if you want to keep your money and enjoy it for the rest of your life.