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Is it better to put lottery winnings in a trust?

Should you create a trust for lottery winnings?

Winning the lottery can be a life-changing event. A big lottery jackpot means big money coming your way. But a windfall can also lead to problems if the money is not managed properly. Many financial advisors recommend putting lottery winnings into a trust as a way to protect the money and make it last.

A trust allows you to protect assets and provide for beneficiaries according to your wishes. The main benefits of putting lottery winnings into a trust are:

  • Avoiding probate – Assets in a trust do not pass through probate, which saves time and legal costs.
  • Privacy – Trusts are not public record like a will, so your beneficiaries and assets are kept private.
  • Protection from creditors – Trust assets are generally protected from any creditors you may have.
  • Protection from lawsuits – Trust assets are protected in case you are sued personally.
  • Estate tax minimization – Trusts can help minimize estate taxes when passing wealth to heirs.
  • Professional money management – A trustee can manage the assets on behalf of your beneficiaries.
  • Control over beneficiaries – You can place conditions on how and when assets are distributed.

These benefits make a strong case for putting lottery winnings into a trust. But there are some other factors to consider when deciding if a trust is right for your particular situation.

Factors to consider

Here are some key factors to weigh when deciding if a trust is right for lottery winnings:

  • Size of the lottery winnings – For a smaller prize, a trust may be an unnecessary complexity. With larger winnings a trust is often recommended.
  • Your financial situation – Do you have other substantial assets, debts, an estate plan already in place? Your overall financial status can impact whether a trust makes sense.
  • Who the beneficiaries will be – If providing for minors or irresponsible beneficiaries, a trust may be preferred.
  • Your tax situation – Income and estate tax planning should be considered when structuring a trust.
  • Expectations for investment and management – Will professional trustees be engaged to manage the assets and make distributions?
  • Desire for privacy – Using trusts instead of direct distributions can help maintain privacy.

Evaluating these personal factors will help determine if a trust is truly beneficial in your lottery winning situation. Consulting with legal, tax and financial advisors is also crucial for fully informed decision making.

How to set up a lottery trust

If you determine that placing your lottery winnings into a trust makes sense, here is an overview of how to go about setting up a trust:

Choose trustees

Selecting the right trustees is the most important decision in creating a trust. Trustees are responsible for managing the trust assets and carrying out your wishes. You can name friends, family, professionals like an attorney or financial advisor, or a corporate trustee like a bank or trust company. Or you may want multiple co-trustees who serve together. Choose trustees who are financially savvy, responsible and align with your goals for the trust.

Define the beneficiaries

Name the beneficiaries who will ultimately receive distributions from the trust. This is often the lottery winner’s spouse, children or other family members. You can structure the beneficiaries’ interests however you want and build in flexibility for changing future circumstances.

Decide on the trust terms

The trust terms lay out how the trust will operate and distributions will be handled. Key factors to consider are:

  • When beneficiaries have access to trust funds (at specified ages or life events)
  • Whether distributions should be staggered over time or lump sums
  • What percentage of assets each beneficiary receives
  • Any conditions set for the beneficiaries to receive funds
  • Whether the beneficiaries will serve jointly or at separate times (consecutive versus concurrent interests)

Customizing the trust terms to your goals and beneficiaries allows you to maintain control while also providing for their needs.

Draft the trust documents

Hiring an estate planning attorney is important for properly drafting the trust agreement. It will detail the trust terms, trustees, beneficiaries, and rules for administering the trust. Tax planning should also be incorporated to optimize use of exemptions and deductions.

Transfer lottery winnings into the trust

Once the trust agreement is executed, you will transfer ownership of the lottery winnings to the trust. This may involve retitling assets like bank accounts, real estate, vehicles and investments into the name of the trust. Work closely with your advisors to ensure it is done properly.

Obtain a TIN for the trust

Like an individual taxpayer identification number (TIN), a tax ID needs to be obtained for the trust for handling any income, deductions, or tax payments associated with trust assets.

Administer and manage the trust

Ongoing tasks like record-keeping, investing, distributions, tax filing and keeping beneficiaries informed will be handled by the trustees per the trust terms. With proper administration, the trust can carry out your wishes for protecting and managing lottery winnings for trust beneficiaries.

Tax considerations for lottery trusts

For lottery trusts and winners, there are important tax issues to evaluate:

Income taxes on lottery winnings

Federal taxes apply to lottery winnings exceeding $5,000. State taxes may also apply. When the winnings are transferred into a properly structured irrevocable trust, the trust becomes responsible for paying these taxes rather than the individual.

Federal gift tax

Transferring lottery winnings into an irrevocable trust is considered a gift for gift tax purposes. Under current exemptions, up to $12.06 million in lifetime gifts can be given by an individual without paying federal gift tax. Transfers above that amount may trigger gift taxes.

Estate taxes

Any lottery winnings not placed into an irrevocable trust will count towards the winner’s taxable estate value at death. If the total estate value exceeds federal estate tax exemption limits ($12.06 million for 2023), estate taxes up to 40% may be due. A trust can reduce potential estate taxes.

Income taxes on trust earnings

Income generated from assets in the trust is taxable. Trust income is taxed at higher rates for amounts over $13,450 in 2023. Careful tax planning is important to minimize trust income taxes.

Consulting tax professionals experienced with trusts and lottery winnings is vital for ensuring tax regulations are followed properly. Ongoing tax planning can help maximize any available deductions and exemptions.

Trusts for lottery winners case studies

Looking at real world examples can help illustrate how trusts are utilized by lottery winners. Here are two case studies of major lottery prize winners using trusts:

The Taylors – Mega Millions Jackpot

When the Taylor family of North Carolina won a $351 million Mega Millions prize in 2022, they opted to put the post-tax winnings into a family trust. The parents and their adult son created an irrevocable trust named the Beautiful Dreamer’s Trust after a favorite song. They worked with legal and financial advisors to set up the trust terms.

As co-trustees, the family will jointly decide on asset management and distributions to themselves as beneficiaries. The trust provides them privacy and protects the assets from creditors, lawsuits, and estate taxes. The Taylors plan to use the trust to pursue family goals like funding education, making investments, and donating to charity.

Richard Smith – Powerball Jackpot

Richard Smith was the sole recipient of a $300 million Powerball jackpot. On the advice of his lawyer, Smith put all the post-tax winnings into a revocable living trust. This trust allowed Smith to retain control as sole trustee and change or dissolve the trust if desired. It provided privacy and some protection from creditors and lawsuits.

During his lifetime, Smith could use trust funds for any purpose. His estate planning documents arranged for the remaining assets to pass through the trust to his heirs, avoiding probate. This case shows how using a living trust can be a simpler option for managing lottery wealth.

Pros and cons of putting lottery winnings in a trust

Weighing the potential benefits versus drawbacks can help in evaluating if a lottery trust meets your needs:

Pros Cons
  • Privacy from public disclosure
  • Protection from creditors and lawsuits
  • Probate avoidance for heirs
  • Option for professional management
  • Funds can be protected from irresponsible spending habits
  • Costs and complexities of creating a trust
  • Income taxes at higher trust rates
  • Less control for lottery winner than keeping outright
  • Rigid distribution structure once trust is irrevocable

This highlights key tradeoffs that should align with your needs and goals for best putting lottery prizes to use.

Alternatives to trusts for lottery winners

While trusts are commonly recommended, there are other tools lottery winners can consider rather than or in addition to a formal trust:

  • Savings accounts – Putting some winnings into FDIC-insured savings accounts can provide security, asset protection and liquidity for short-term needs.
  • Retirement accounts – Contributing to retirement plans like 401ks and IRAs that come with tax benefits. This can diversify your investments for tax-deferred growth.
  • Annuities – These offer guaranteed lifetime income payments to help protect against outliving lottery winnings.
  • Life insurance – Can create a death benefit for heirs and function like an asset protection trust.
  • Business investments – Investing some winnings into starting or buying a business can provide ongoing income.
  • Charitable trusts – Can generate income while also benefitting charity. They come with potential tax deductions.

Diversifying lottery wealth across different vehicles and asset classes is prudent. An integrated wealth management strategy considers how all the options work together in building a secure financial legacy.

Frequently asked questions

Some common questions that come up around lottery winnings trusts include:

Can you be the sole trustee and sole beneficiary of a trust?

Yes, it is possible to be the only trustee distributing funds to yourself as the sole beneficiary while living. This offers more control for the lottery winner. After your death other beneficiaries can be assigned to receive remaining assets in the trust.

Do I have to pay taxes when putting money into a trust?

With an irrevocable trust, transferring assets is considered a taxable gift. But under current exemptions you can gift up to $12.06 million into a trust without paying federal gift tax. State taxes may apply.

What happens to leftover assets in a trust after I die?

You can designate successor beneficiaries to receive any funds or assets remaining in the trust after your death. Or the trust can be designed to terminate and distribute its assets to your heirs.

Can I dissolve a trust or remove assets from it?

With an irrevocable trust, no. The terms are permanent and cannot be undone or altered. With a revocable living trust, you maintain the right to dissolve the trust and take back assets during your lifetime.

Do I have to pay rent or mortgage if my house is put into a trust?

No, if you are also the beneficiary living in the home. The trust technically owns it but you can reside there rent-free based on the trust terms. If non-beneficiaries live there, rent may need to be charged.


For lottery winners, putting the funds into a properly drafted trust can help responsibly manage the windfall for beneficiaries, provide asset protection, and minimize taxes. Weighing all the considerations around beneficiaries, distribution terms, investment goals, and taxes is crucial in deciding if a lottery trust makes sense for your situation. Financial, legal and tax advisors familiar with trusts and lottery planning are invaluable resources if you are lucky enough to beat the huge odds and win a jackpot. With thoughtful planning, that windfall can provide long-lasting security, stability and fulfillment for you and your heirs.