What Kinds of Trusts Are Available to Lottery Winners?
6 Tips to Save Using the Most Popular Food Delivery Apps
You have no more worries because you finally hit the jackpot with the lottery, right? That’s not really the case. Your lifestyle has changed overnight, meaning a drastic change to your financial planning. You want to keep your money safe and spend it the right way while dealing with requests from people who suddenly become your friends. Many types of trusts secure your winnings, according to your plans.
Lottery winners have access to the same trusts available to anyone seeing to secure financial assets over an extended period. These include both revocable and irrevocable trusts alike.
Revocable and Irrevocable Trusts
Trusts generally fall under the categories of revocable and irrevocable. You can change or revoke a revocable trust during your lifetime, but an irrevocable trust remains in force as you originally intended. You still control a revocable trust, but you have no asset protection from creditors. An irrevocable trust becomes a separate entity shielded from outside interference because you turn ownership of your assets over to the trust. Changes can be made to an irrevocable trust only if the grantor, or creator; trustee; and beneficiaries agree to the changes.
Security of a Trust
The irrevocable trust has advantages for lottery winners in that all assets transferred into the trust no longer belong to you. Although you lose control over the trust after creating it, you provide instructions to the trustee on how to manage money and assets in the trust. Your trust is protected from lawsuits and creditors because the assets aren’t yours. Your beneficiaries win because the trust is not subject to estate tax or claims from creditors after your death.
Exploring Blind Trusts
Irrevocable trusts include blind trusts in many states, so lottery winners can claim their winnings without revealing their identity. Whether you win a huge Powerball-type lottery or just enough to attract unwanted attention, a blind trust transfers your winnings directly into the trust, usually with the help of an attorney. Your closest neighbors might not even know you’ve won the lottery. This helps avoid long-lost relatives and friends from asking you for handouts. Your beneficiaries also don’t know what you have in the trust. The administrator, or trustee, handles the management of your money in private, according to your instructions.
Working With Asset Protection
If you want to protect your newfound wealth for the time being and control your assets later on, consider an asset protection trust. This type of irrevocable trust also eludes creditors. You can set up an offshore asset protection trust outside of the U.S. for insulation from regulations that could affect your trust, depending on where you place your money. You establish the trust for a certain number of years before regaining control over the trust. These are often established in the Cook Islands, a South Pacific nation known for laws making it difficult for foreign courts to order changes in how a trust is structured.
Spending: Your Way
Suppose, however, you don’t have great concerns about privacy and want to help out people or organizations with your winnings. A charitable trust allows you to use part of your financial gains for your favorite charities while avoiding estate and gift taxes. You can form a spendthrift trust that provides money to your beneficiaries on your terms, meaning they can’t spend too much or sell away the interests of the trust. Consult an estate planning attorney about the particular goals for you and your beneficiaries to establish a trust for lottery winnings.
- Estate Street Partners: Revocable Trusts vs. Irrevocable Trusts
- FindLaw: Types of Trusts
- Alper Law: Offshore Trusts
- Offshore Company: Cook Islands
- Cook Islands: Homepage
Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of “The Complete Guide to Trust and Estate Management” from Atlantic Publishing.
Whether you’ve won the lottery or simply gotten wealthy through more conventional means, you may want to put money into trust. Options include revocable trusts you can alter, and irrevocable trusts that you generally cannot. Offshore trusts are sometimes used to protect assets from US regulations.
How To Remain Anonymous If You Win The $1.5 Billion Powerball Lottery
If you think the odds of winning this week’s record breaking $1.5 billion Powerball lottery were low (1 in 292 million), try remaining anonymous if you win! The Multi-State Lottery Association, which runs the Powerball Lottery, explicitly states that there are only five states in which you have the legal right to remain anonymous. If you don’t buy the winning ticket in one of those states, are you out of luck? Not necessarily. Here is an excerpt from my new book, The Sudden Wealth Solution: 12 Principles to Transform Sudden Wealth Into Lasting Wealth.
Gallery: 10 Steps To Take When You Win A Lottery Jackpot
If you want to remain anonymous but didn’t purchase the winning ticket in one of those states, it makes the job harder, but there are strategies and legal entities you can create that will help you remain more private if you win the lottery. There are two different strategies. The first is using a “blind” trust.
Remaining Anonymous After Winning the Lottery: Using a Blind Trust
There are a lot of misconceptions and potential problems with blind trusts. Federal officeholders, such as senators or governors, are required to either fully disclose all their financial holdings and any possible conflicts of interest, or place their holdings in a blind trust with a financial institution as the trustee. To prevent the perception that they are voting on legislation from which they could personally benefit, their assets are managed independently and by a third party, without their knowledge or control (i.e., the politician is blind to their investments). But you’re not a politician and you don’t want to give up control of your assets to someone else.
Recently, the term blind trust has grown to include a trust or entity that attempts to hide the true ownership from the public and asset searches. In this case, “blind” refers not to the owner of the trust but to everyone else.
Here you create an entity, a trust or LLC, and name it something other than your name. For example, one of my actor clients titled his trust using an obscure quote from a former president of the United States. Unlike a politician’s blind trust, he has 100% control of the trust, assets, and decisions. This doesn’t completely cloak the account, but it can make tying the trust to my client more difficult in an asset search. For example, Louise White, the winner of a $210 million lottery, named her trust the “Rainbow Sherbert Trust” after the ice cream flavor that led her to the grocery store where she purchased the winning ticket.
Remaining Anonymous After Winning the Lottery: Using a Trust Within a Trust
For high profile lottery winners who want even greater anonymity, a trust within a trust structure is recommended. This is an advanced strategy that should only be taken with competent and experienced legal counsel.
One of my sudden wealth colleagues, Jason Kurland, is a “lottery lawyer” and partner at Certilman, Balin, Adler, & Hyman, LLP. Jason has represented several of the largest Powerball jackpot winners and specializes in protecting the anonymity of lottery winners. Jason is an advocate of the trust within a trust structure because it not only shields winners from requests for money, but also protects them from others.
The trust within a trust requires two trusts:
First Use a Claiming Trust
It’s called the Claiming Trust because this is the entity that claims the prize. As the winner, you assign the ticket to the trust. The trust, which now holds the winning ticket, can claim the prize. The Claiming Trust is a short-term trust that simply claims the prize and then distributes the win to the Bridge Trust. To keep your win as private as possible, the Claiming Trust should have a unique title not at all related or traceable to you. For example, you wouldn’t want the trust to have your name, address, or other identifiable information as the title.
Handing over ownership of a million dollar winning ticket to a trust that is not in your name can seem reckless and scary. Why is this strategy recommended? Rest assured, even though the name of the Claiming Trust won’t have your name, the trust will be directly tied to you. The Claiming Trust, like most trusts, include three types of people: (1) grantor – this is you, the creator of the trust and the individual whose assets are put into the trust, (2) trustee – this is also you, the person who manages the trust and makes decisions regarding investments and distributions and (3) beneficiary – again, also you, the person for whom the trust was created and who receives the benefits of the trust.
The astute reader may be wondering how anonymous the Claiming Trust is when your name is listed as grantor, trustee, and beneficiary throughout the trust document. It’s possible to create an irrevocable trust and name a trusted family member, attorney, or financial advisor as trustee whose only function is to immediately transfer the trust assets into the Bridge Trust for which you will have control. For the winner who wants to remain as private as possible, this is a potential strategy, but for most, I don’t recommend giving up control.
Although most revocable trusts use the Social Security Number of the grantor (i.e., you – the person setting up the trust), you want to avoid this. Why? State lottery commissions are state agencies, and as such, all of their records are subject to the Freedom of Information Act, which makes it easy for a reporter (or anyone else!) to request these documents and trace the Social Security Number back to you. For greater anonymity, depending on the state lottery commission’s rules, you may be able to have a limited liability company (LLC) act as the grantor.
Using this strategy, the winning lottery ticket would be owned by the LLC and the LLC would be the grantor of the Claiming Trust. If a nosy reporter gets a hold of the Claiming Trust, they wouldn’t see your name but would see the name of the LLC instead. However, some states have reporting requirements when forming an LLC that would identify the name of the person who owns the LLC. For example, in California, a Statement of Information for domestic and foreign corporations must be filed within 90 days of forming the LLC, which requires the complete name and addresses of its managers and officers. This is where it is important to work with an attorney well versed in the laws of your state.
Second Use a Bridge Trust
The lottery proceeds are paid into the Claiming Trust and then almost immediately transferred into the Bridge Trust. The reason the lottery proceeds aren’t simply paid to the Bridge Trust is because the Claiming Trust helps to shield the true identity of the winner – it is cloaked to avoid determining the true owner. The Bridge Trust, however, is not designed to protect the identity of the winner. The details of this trust are not subject to Freedom of Information Act requests, so your name can be listed as grantor and trustee, but because the trust name will be listed as beneficiary of the Claiming Trust, which is subject to Freedom of Information Act requests, it’s best not to name the Bridge Trust with personally identifiable information.
It’s called a “bridge” trust because this is the vehicle that holds and manages the assets for you while you determine if there needs to be more complex estate, charitable, and asset protection trusts/entities. But if you do not need more complex planning, the Bridge Trust is perfectly sufficient as your “living trust” and to serve as your main estate planning document, because unlike the Claiming Trust, it will have all of the necessary estate planning provisions.
Connect with me on Twitter @rpagliarini, my financial planning blog, or email me. This discussion is not intended as financial, legal or tax advice, and cannot be relied upon for any purpose without the services of a qualified professional.
I have dedicated my professional life to learning and writing about retirement planning and managing sudden wealth. I have a PhD in financial and retirement planning and
Here are several tips on how you can remain anonymous if you just won this week’s $1.5 billion Powerball lottery.