Winning half a billion dollars has drawbacks
You just became a halfbillionaire — now what?
San Jose’s mystery winner of Tuesday night’s $543 million Mega Millions jackpot — the ninth largest in U.S. history — might be pondering that very question.
Winning the lottery might seem like a cure to all of life’s problems, but few realize that the millions that could make you are just as likely to break you if you don’t have the right plan.
“It’s a curse and a blessing,” said Daniel L. Foss, a wealth management adviser at Northwestern Mutual Life Insurance in San Jose. “It changes who you are completely.”
With big bucks come big decisions — from day one.
First question: Should you claim the prize as an annuity paid out in 30 annual installments — or a lump sum in cash? If the winner claims the cash, they sacrifice more than $200 million in winnings over the long haul, but they’re instantly swimming in it. The lump-sum payment is $320.5 million before taxes. The annuity would give them a first check worth just over $8 million, with the installments growing each year to just less than $34 million.
“I would want the control of the lump sum,” says Foss, who said building a strong investment strategy with safeguards will payoff in the long-run.
Indeed, not many lottery winners choose the annuity option, but some might
welcome the financial discipline that its steady payment schemes impose.
“Most lottery winners lose their money within the first two to four years,” said Foss, and the internet is full of their riches-torags stories.
But those who do hang on to the money have a whole different set of problems: Everybody wants a piece of you.
Can’t-miss business opportunities. Cousins who want to go back to college. Donation requests from nonprofits and religious organizations.
“It’s an inundation that they get instantly when
they are still trying to process what this money means to them,” says Beverly Hills-based wealth manager Robert Pagliarini, a certified financial planner who helps lottery winners navigate their newfound riches. In many cases, dealing with a sudden influx of exorbitant wealth can be tormenting. “We’ve hired therapists before to deal with this.”
San Jose’s lottery winner — who bought the ticket this week at Ernie’s Liquors in East San Jose but has yet to come forward — will not have the option to stay anonymous when they contact the California lottery
to claim their prize. Their name will be published as a matter of public record.
First will come the people who want to help you, said Pagliarini, “people calling themselves professionals, (and) an onslaught of media.”
A lot of his clients end up booking a hotel room for a week or two to hide out.
The Castellano family, who won a $141 million jackpot in 2001, ended up moving from San Jose to a more secluded abode in Saratoga, partly to avoid the barrage of phone calls and knocks at the door.
“You don’t want people beating past your door,” Foss said. “You need to move to a different neighborhood. You’ll end up living with Steph Curry in Alamo.” Keeping up with the Currys is tough, though. They’ve already moved on.
But it’s not only saying “no” that doesn’t come easy — it’s also planning for how the wealth will be passed on.
“If you don’t have a plan and you put a pile of money on the table — it just creates chaos,” said Foss, “I’ve seen this happen when there’s only $20,000 at stake.”
“The worst disaster is if you have ambiguity,” said James Mitchell, a San Francisco attorney who specializes in estate planning. That’s why many advise that some of the first steps the nouveau riche should take is hire a team to manage the wealth for them.
“The more zeros on your balance sheet, the more planners you need,” said Foss, who suggested hiring a tax adviser, a lawyer specializing in trusts, LLCs, and someone like himself — a wealth manager.