What Legal Issues are Involved in Winning the Lottery?

Lottery winners must address many legal issues at one point or another. Know this: if you win the lottery, it is highly recommended you consult with an attorney before claiming the winning ticket. This will allow you to address the various legal issues professionally and lets winning the lottery be a good thing and a nightmare.

Privacy and the Identity of Lottery Winners

Most winners’ names are published in the media, which can bring on a loss of privacy that you previously enjoyed.

Some argue that the winners’ names should be published so that the public can be assured the state isn’t just keeping the money. But others say that the celebrity status created by a lottery win can have negative consequences because of the unwanted publicity.

Depending on the circumstances, you may be able to protect your privacy. Consult with an attorney about how you choose to receive the winnings. For example, there may be legal entities that can be created to help mask your identity. This might help save you from a 15-minutes-of-fame-gone-wild situation.

Taxes on the Winnings

The law considers lottery winnings taxable income. Whether received as a lump-sum payment or in multiple annual payments, the winnings will be taxed as you receive them.

A trust may be an excellent option to hold the lottery winnings. Some of the tax advantages of a trust may include avoiding probate and minimizing estate taxes for any beneficiaries after you pass away.

Splitting Lottery Winnings

Many people buy lottery tickets with pooled funds from family, friends, or colleagues. Splitting the winnings depends on:

• Any verbal agreement to share the winnings with another person
• The deal being enforceable under applicable state laws (Some states prohibit contracts for gambling)

If multiple individuals own the winning ticket, a partnership may be a good entity to form. This allows a neutral third party to receive the winnings on behalf of all of the partners. Rather than one individual receiving the checks, a partnership can distribute them fairly.

Winners Sharing With a Spouse or a Live-In Significant Other

Lottery money may be considered marital property acquired during the marriage, particularly if the ticket was purchased with marital funds. Lottery winnings may be subject to division upon divorce, so you may want to speak with an asset protection attorney if a divorce is pending.

There may be joint rights to the winnings even if the parties are not married, but they:

• Are significant-others who live together
• Share living expenses
• Have a regular practice of buying lottery tickets each week

Gifting Some of the Money to Family or Friends

A lottery winner can make a gift of some of the lottery winnings. This is legal only up to the annual exclusion limit, or else it will need gift tax liability. Making yearly gifts in this fashion is a good way to share the winnings with family members and friends while mitigating the tax implications.

Gifts made to another person’s education or medical care may have favorable tax treatment as well. Finally, donations to charities can have certain attractive tax advantages for the lottery winner.

Getting Professional Protection If You Win the Lottery

When a person wins the lottery, the advice and consultation of an experienced estate planning and tax attorney can be a huge advantage when dealing with the various legal and related issues.

Ideally, a lawyer should be consulted before claiming the lottery prize so that the appropriate legal mechanisms can be put in place.