What Financial Advisors Can Do for Lottery Winners

Winning a lottery can provide a sudden boost in wealth, but it also creates new challenges that require careful planning. Winners often have to resolve different challenges, including dealing with personal security, managing publicity, tax implications and charitable giving. A financial advisor could help you manage these issues and provide support to protect and grow the money.

How Winning the Lottery Can Create Problems

Plucking a lucky ticket in a state lottery can solve many old problems while simultaneously creating new ones. Many of these concerns are well outside the experience of the average person. What account do you use to receive a six-or-seven figure deposit? How do you deal with friends and family who come to you for help? What are your investment options?

Thankfully, financial advisors, especially those who specialize in managing windfalls, help clients who suddenly received a lot of cash. It doesn’t matter whether you’re receiving money from the lottery or a large inheritance, the financial advisor can help you navigate what to do and how to overcome the new problems that receiving this much money suddenly can bring.

How a Financial Advisor Can Help Lottery Winners Right Away

If you win the lottery, there are several steps to consider as you adjust to your new financial reality. Preparing for potential challenges and making strategic choices from the start can help you make the most of your winnings. Here are some key areas where a financial advisor can provide valuable guidance:

What to Do First: While you may have dreamed about winning the lottery, the reality of handling such a windfall can be overwhelming. A financial advisor with experience in managing sudden wealth can clarify your immediate options and help create a long-term plan. This support can be essential in identifying what to address now and what to plan for in the future.
Timing and Communication: Securing your ticket is a top priority, and a financial advisor might recommend placing it in a bank safety deposit box right away. Additionally, maintaining confidentiality is crucial to avoid unsolicited requests for loans or investments from others. There’s no need to rush; lottery winners typically have up to six months to claim their prize, giving you time to work with your advisor to develop a thoughtful financial strategy.

How Financial Advisors Can Help Lottery Winners Long-Term

A couple meeting with a financial advisor for lottery winners.

Once the winning ticket has been verified, it’s important to build a financial plan before you’ve received the money. The last thing a lottery winner wants is to not be prepared when the money starts flowing in. This includes knowing where to deposit the money, as well as how to set you up for success in investing and deciding what you’re going to spend.

Here are the long-term things a financial advisor can do to help a lottery winner:

Assembling a team: A lottery win of life-changing proportions calls for a team of experts. In addition to the financial advisor, a lottery winner often hires an attorney and an accountant. The attorney is needed for matters such as preparing a trust to protect the winnings from publicity, while the accountant can mitigate the inevitable tax bite. The financial advisor’s role is to assess your financial goals and prepare an investment plan that will help accomplish them.
Maintaining anonymity: Many states let winners claim prizes without revealing their identities. That can be invaluable for avoiding important requests for funds. Setting up a blind trust with the help of an attorney can keep your name completely out of it.
Choosing lump sum or annuity: This decision will draw on the expertise of the financial advisor as well as the accountant. Taking the lump sum allows for more flexibility and, potentially, greater investment gains than receiving winnings in annual payments. However, choosing the annuity payout may be better for smaller wins and younger winners and also could reduce overall tax liability.
Managing taxes: Federal and, in most jurisdictions, state income taxes consume big chunks of lottery winnings. Financial advisors can help devise strategies such as charitable gifts that keep this to a minimum. For instance, making a large contribution to a donor-advised fund or private foundation can reduce the first-year tax bite while giving time to decide what charities will benefit.
Handling requests: One of the most challenging aspects of sudden wealth can be coping with requests for gifts, loans and investments from friends, family and outright strangers. A financial advisor can suggest practices to manage this, such as offering loved ones one-time gifts up to the limit for avoiding federal gift taxes. An advisor can also investigate investment opportunities to ensure they are legitimate and above board and match your objectives and profile as an investor.
Investing wisely: Even a very large win can be eventually lost through mismanagement and poor decisions. A financial advisor can help you avoid this tragedy. He or she will usually start by discussing your spending goals and investment objectives. Then they’ll help you prepare a plan for achieving them with the help of time-tested investment vehicles and strategies. Finally, they’ll assist you with managing your investments so the life-changing impact of a lottery win is more than temporary.

Common Financial Mistakes Lottery Winners Should Avoid

Spending too much, too fast is one of the most common mistakes lottery winners make. Without a clear financial plan, it’s easy to burn through large sums quickly on houses, cars, and gifts. Many winners overestimate how much they can safely spend after taxes and forget to factor in long-term needs such as healthcare, investment income, and estate planning. A lack of budgeting can leave winners financially strained within a few years of their windfall.

Another common mistake is making financial decisions without qualified advice. Friends, family, and strangers may present business ideas or ask for loans. Some winners fall into scams or invest in high-risk ventures without proper due diligence. Others rely on informal arrangements or unverified advice. Working with a team that includes a financial advisor, tax expert, and attorney can help assess requests and protect against fraud or poor judgment.

Ignoring tax obligations is another frequent error. Lottery winnings are subject to federal taxes, and many states also tax the prize. Winners who don’t set aside enough for taxes risk owing the IRS more than they expect. This becomes especially problematic if they give away large gifts or make major purchases early. Consulting a professional about how to structure gifts, donations, and investments can help avoid unnecessary tax burdens and preserve long-term wealth.

Bottom Line

A lottery winner, having just met with their financial advisor.

A financial advisor can help a winner address key decisions, such as how to safeguard the winning ticket, whether to take a lump sum or annuity payout, and how to manage taxes. Advisors can also guide winners on forming a team of legal, accounting and financial professionals, maintaining privacy where possible, and developing strategies for supporting family and charitable causes. In addition, they can help avoid investment schemes and prepare a long-term financial plan to preserve and grow the winnings responsibly.

Tips for Investing Windfalls

When you’re looking for a financial advisor to help you decide what to do with any sudden windfall, interview a few to find one with appropriate qualifications and experience. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Restraining the urge to splurge often is part of responding wisely to a lottery win. However, it may not be necessary or even wise to completely suppress these impulses. Many financial advisors suggest taking a modest portion of your winnings, perhaps 5% of the total, and splurging on whatever your heart desires, with little or no thought as to whether or not it’s a financially wise move. The idea is that a small binge may satisfy the desire to behave as if money is no object and help avoid a possibly disastrous major spending spree and you can still establish a nice retirement income.