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.
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.
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.
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 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.
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.
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