Why do people get lawyers when they win the lottery?

Winning the lottery is an exciting event that can change someone’s life in an instant. However, along with the excitement comes many important financial and legal considerations. Getting help from professionals, especially lawyers, is crucial for lottery winners to properly manage their windfall and avoid common pitfalls.

Taxes

One of the top reasons lottery winners need lawyers is to deal with taxes. While having to pay taxes on lottery winnings might seem like a nice problem to have, things can get complicated quickly:

Lottery winnings are taxed as income by the IRS and most states. The top federal tax rate is currently 37%, and state taxes can be up to 8%-10% or more. A lawyer can provide strategies to minimize the tax burden.
Winnings are taxed in the year received. Receiving a massive windfall all at once can push winners into the highest tax brackets. Lawyers can recommend strategies like annuities and trusts to smooth out the tax hit.
Back taxes may be owed. If a winner has other substantial assets or income, their past returns may need to be amended to account for the new earnings.
Estate taxes come into play for prizes over $11.7 million (in 2021). Lawyers can help winners structure their estate planning accordingly.

In short, the complex set of tax issues around lottery winnings means most winners need professional legal and tax help.

Financial management

Coming into a financial windfall far beyond one’s usual means can be challenging. Statistics show that one-third of lottery winners end up bankrupt. Lawyers serve an important role in helping winners prudently manage their finances:

Lawyers recommend setting up trusts and other structures to control how the money is invested and distributed over time. This protects against wasting winnings all at once.
They help prevent bad financial moves like speculative investing, questionable loans to friends and family, and buying depreciating luxury items.
Lawyers recommend assembling a financial team including an accountant, financial planner and investment advisor. This team provides professional guidance on managing the windfall.
They caution winners not to quit jobs or make other major life changes right away. Careful planning takes time.

With proper financial management guided by a lawyer, lottery winners are much more likely to turn their prize into lasting financial security.

Privacy concerns

Winning the lottery means instant publicity and attention. People appear looking for handouts, investment opportunities, or even romance. Lawyers help winners keep privacy and handle public exposure of their windfall:

In most states, winners cannot remain anonymous. Lawyers advise on minimizing public appearances and interviews.
They recommend using trusts, lawyers, and accountants to collect winnings to shield the winner’s identity as much as possible.
Lawyers help establish boundaries with long-lost friends and relatives seeking money.
They advise winners how to decline requests for donations and investment pitches in a prudent manner.
Lawyers send cease-and-desist letters to marketing companies illegitimately using the winner’s name and likeness.
If needed, they can pursue restraining orders against people harassing the winner or their family.

In general, lawyers act as gatekeepers to help lottery winners keep their privacy amidst intense public curiosity about their windfall.

Predatory scams

Coming into an unexpected windfall also brings out scammers seeking to prey on lottery winners. Common scams include:

Fake charities asking for donations.
Investment schemes involving excessive risk, fees, or fraud.
Personal assistants, advisors, or brokers who overcharge for basic services.
Blackmail attempts using threat of publicizing personal details.
Fake lotteries or sweepstakes requiring upfront “taxes” or “fees.”

Lawyers have experience spotting scams and warning winners away from them. They act as an objective middleman for assessing any major offers or proposals made to the winner.

Legal disputes and claims

Coming into substantial new assets can lead to lawsuits and legal claims down the road. A lawyer can advise the lottery winner on avoiding and responding to lawsuits over:

Family members claiming they are entitled to some of the winnings.
Business partners arguing an ownership stake based on vague past promises.
Creditors or contractors making dubious claims just to access the winner’s assets.
Claims of a shared ownership interest in the winning ticket.
Civil suits alleging the winner caused harm or loss to the plaintiff.

Having counsel already in place helps winners respond to legal disputes from a position of strength.

Marriage and estate planning

For lottery winners in relationships, lawyers play a key role in protecting personal and financial interests around marriage and estate planning:

They recommend pre- or post-nuptial agreements specifying separate vs marital property.
Lawyers draft wills and trusts ensuring the winner’s assets are distributed as they intend.
They establish protections for children from prior relationships receiving part of the estate.
Lawyers advise on minimizing estate taxes when assets pass to heirs.
They warn winners not to gift large sums or add names to assets titles until marriage and estate plans are structured.

Careful legal guidance protects the lottery winner, their spouse, and other loved ones when large sums are involved.

Business ventures

Lottery winners sometimes want to start businesses based on suddenly having wealth. Lawyers assist with making wise choices:

They recommend holding most winnings from any new venture to limit risk.
Lawyers advise on picking the right business structure including corporation, partnership, or sole proprietorship.
They help perform due diligence on potential partners and avoid being taken advantage of.
Lawyers recommend starting with a solid business plan before jumping into any new investments.
If issues arise later, they can negotiate disputes with partners, employees, vendors, or customers.

Good legal guidance maximizes the chance of business success for lottery winners seeking new ventures.

Real estate investments

Winning the lottery often leads to buying real estate including houses, land, apartment buildings, vacation properties, and more. Lawyers help with several key aspects:

They ensure property titles and deeds are properly transferred to the winner.
Lawyers recommend holding real estate in trusts or LLCs to protect the winner’s identity and limit personal liability.
They screen any partners or co-investors to verify backgrounds and reputations.
Lawyers review listing agreements with brokers and transaction documents to prevent overpaying commissions and fees.
They can negotiate disputes with contractors, inspectors, community associations, or tenants if issues arise.

Real estate transactions have legal complexities that most lottery winners don’t have experience with. Relying on lawyers protects their interests.

Dealing with the lottery commission

Collecting winnings and interacting with state lottery officials also requires legal guidance:

Lawyers ensure winners follow procedures for redeeming tickets and collecting prizes accurately.
They advise on different payment options including lump sums or annuities.
Lawyers negotiate any disputes over validating winning tickets, especially for damaged or lost tickets.
They claim prizes using legal entities like trusts if winners want privacy.
Lawyers review prize claim forms and lottery commission contracts to protect winner’s interests.

Administrative issues around redeeming and collecting winnings often require legal expertise.

Regulatory compliance

Handling large sums of money means paying attention to legal reporting requirements:

Cash transactions over $10,000 must be reported to the IRS and Treasury Department.
Suspicious transactions with possible money laundering or terrorist financing links must be reported.
Foreign bank accounts and assets over $10,000 must also be reported.
Certain other cash flows and transactions require reporting depending on amount and circumstance.

Lawyers help winners meet important reporting rules without unnecessary risk or penalty.

Minimizing harassment

Lottery winners often face relentless solicitation and harassment after going public:

Lawyers screen mail, email, social media, and phone calls on the winner’s behalf.
They track down sources of leaked personal information like addresses and phone numbers.
Lawyers advise on getting unlisted contact details and using aliases where reasonable.
They issue cease-and-desist orders to deter persistent marketers and scammers.
In extreme cases, they obtain restraining orders and aid in having harassers prosecuted.

Ongoing harassment is common but lawyers have tools to help lottery winners manage it.

Cashing in winning tickets

Here are key steps lawyers recommend when cashing in winning lottery tickets:

Make photocopies of both sides of the winning ticket for records.
Sign the ticket immediately to establish ownership.
Secure the ticket in a bank safe deposit box or home safe.
Select the prize payment method – lump sum or annuity payments over time.
Fill out the lottery commission’s claim form and verification process.
Obtain the winnings check from the lottery commission.
Deposit funds into a bank account set up for this purpose.

Following proper procedures avoids legal issues when redeeming the winning ticket.

Warning signs a lottery winnings offer is a scam

Here are common red flags that a lottery notification is not real:

Contact comes via email or phone call rather than official letter.
Lottery is based somewhere you never entered or bought tickets from.
Message says you won a prize but have to pay fees or taxes first.
Winnings are an improbably large amount.
You are required to provide personal details and bank account info.
Contact demands you act urgently or risk losing the prize.
Poor grammar, spelling mistakes and shady contact details.

Real lotteries don’t inform winners via unsolicited communications. Alerting a lawyer helps verify a win is legitimate.

Picking a lawyer to handle lottery winnings

Key tips for selecting a qualified lawyer to assist with a lottery windfall:

Find specialists in estate planning, taxes, and asset protection.
Seek lawyers used to dealing with large sums of money.
Verify credentials and professional memberships.
Ask about client confidentiality protections.
Meet with multiple lawyers before selecting one.
Understand fee structures – flat rate vs hourly billing.
Look for compatibility and responsiveness during initial consultations.

Vetting lawyers carefully upfront avoids problems down the road.

Protecting lottery winnings from friends and family

It’s natural for friends and family to ask for some of a lottery winner’s prize. But handing out cash can cause issues down the road. Lawyers recommend:

Not gifting any substantial sums for first 6-12 months.
Speaking to tax professionals about gift tax rules first.
Requiring loans be documented and repaid if providing money.
Reminding recipients that gifts may be taxable income to them.
Being cautious about putting relatives on payroll or house deeds.
Using lawyers as intermediaries for major requests.
Saying “I’ll think about it” rather than yes or no immediately.

Lawyers help set healthy boundaries around assistance for friends and family.

Common disputes over ownership of winning lottery tickets

When more than one party claims ownership of a winning ticket, common legal issues include:

A ticket was purchased by a group and there is disagreement on how to split the money.
A couple buys tickets together while married or in a relationship then later separates.
Tickets were given as gifts and recipients and givers both claim the winnings.
Someone legally incapable like a child or incapacitated person held the ticket.
A ticket was stolen and the actual owner steps forward after payout.

Determining rightful ownership requires official records, testimony, and legal judgment.

Reasons lottery winners lose money quickly

Common causes why lottery winners burn through their winnings so quickly:

Making impulsive purchases on luxury goods, cars, vacations, homes.
Lending or gifting money to untrustworthy friends and family.
Failing to pay taxes on time or optimizing tax liability.
Getting talked into speculative investments or scams.
Starting unwise businesses themselves without advice.
Paying off personal debts then running them back up.
Letting too many people know about the windfall.
Not having solid saving and investing habits.

Good legal and financial planning prevents lottery winners from wasting their sudden wealth.

Conclusion

Winning the lottery brings huge changes and many complex financial, legal, privacy, and security issues. Most winners are not equipped to handle these challenges properly without professional help. Hiring an experienced lawyer provides guidance on minimizing taxes, managing the windfall, avoiding scams, dealing with publicity, and estate planning. While adding a lawyer costs some of the winnings upfront, it often pays off many times over by preventing money from being lost to bad decisions, disputes or theft. With proper legal advice, lottery winners can prudently manage their windfall for many years rather than squandering it all right away.