Making Cents: Acquiring Large Sums of Money
By: John P. Napolitano, CFP®, CPA, PFS, MST
Whenever the purse of any lottery game gets large, more tickets get sold. Most people realize that your odds of winning are no greater with one ticket or 20. But if your numbers ever do come up or you suddenly have money or assets that you didn’t have yesterday, these are some of the steps that you may consider to protect yourself before cashing the check.
Let’s first get our arms around the concept of just how much did you get, and compare that to how much you need. If your gain is substantially higher than any amount that you could possibly spend, including bucket list stuff than you should ask what other options you may have. It would be worth a few hours to run the numbers as this step may help solve other issues later.
For example, if you are about to receive $25 million and the math shows that you’d live beyond your wildest dreams with only $10 million, you can use this entity to plan for the excess. Leaving it in your name may only cause unnecessary death taxes upon your passing and also cause your income tax bill to rise due to earnings from the assets. Your options would be to include other beneficiaries in your entity to reduce the ultimate size of your future taxable estate or carve out a nice chunk for charities.
The next step may be asset protection. Protection against lawsuits and predators, income and estate taxes, and money grubbing friends and relatives may be needed. You can start your protection by establishing an entity to receive the winnings rather than cashing the check made payable to you personally. This entity could be a trust or a limited liability company (LLC) where you can draft the terms so that it can protect against the perils that may be concerning in your particular situation.
The entity itself will not necessarily protect your assets, it is the type of entity and the extent to which you control the asset inside the entity. To gain maximum protection you would need to have your access limited. Those limits can be imposed by the document itself and then by any trustee or manager of the organization that you select. So you don’t risk the possibility of never having access to the funds, you can build a provision inside the documents that gives you the authority to replace your fiduciary if you want.
The statistics for those who receive large sums of money unexpectedly are not very pretty. Whether it is the assets inherited by a young person eager to live life to the fullest or the lottery winner who suddenly becomes penniless after the 20 years of payments stop, the inclination to spend every red cent and not plan for the future is irresistible to many. If this is you, and you know in advance that you’ll have trouble planning, you can set up these assets in such a way that you can protect yourself and other family members from excessive spending.
This information is not intended to be a substitute for individualized legal advice.
John Napolitano, US Financial Advisors, US Wealth Management and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. US Wealth Management, US Financial Advisors and LPL Financial do not offer tax advice.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.