Experts discuss smartest ways to spend jackpot winnings

Oct. 24--TUPELO -- With the Mega Millions lottery jackpot at a record $1.6 billion, Americans have been snapping up tickets across the U.S.

A few local wealth advisors offered advice about how winners could successfully manage their earnings, and what they could expect from existing tax law in Mississippi.

"Every time we hit these levels, there is an increase in people buying tickets, and eventually somebody is going to hit," Hilliard Lyons Wealth Advisor Chris Cole said.

"I bet you it would be pretty difficult in small towns to keep it quiet for very long, and boy it's a really big jackpot," Tupelo-based CPA Joe Babb added.

Annuity or lump sum

Based on existing tax law, a lottery winner in Mississippi may receive a smaller payout than expected. Wealth Advisor Robin Haire estimates winners could reasonably expect to receive a payout of less than half of their total winnings after taxes.

"But still, $900,000 is a lot of money," Haire said, adding people are more frequently taking out annuity payments versus the lump sum now because they may not be disciplined enough to manage their newfound wealth.

"Let's say you've got a 20-year payout, if you screw up that first year, you've got 19 more to make up for it so it's not a bad idea," Haire said.

Haire recommends winners should not make any rash financial decisions for 90 to 120 days.

"Do not go in and tell your boss to pound sand," Haire said, adding winners should try to avoid purchasing anything that "floats or flies" for the first three to six months.

Hilliard Lyons Wealth Advisor Chris Cole said it depends upon the winners' circumstances, whether they should take their earnings in annuity or a lump sum. People who play the lottery tend to be in the lower income bracket.

"Both are viable options, but quite frankly, historically people have done better by taking a lump sum, provided that they can get some good sound advice and make some good financial moves," Cole said.

Managing the funds

Cole recommended the winner should establish a trust to help with the management and protection of the funds.

"The first thing they should do, is do everything they can to keep their circumstances confidential, but also they should get some sound advice from people who they are comfortable working with, as to what the best course of action is," Cole said.

Cole said people need to be realistic.

"This is recreation, this is not a viable retirement plan option. If you get it be happy, but also at the same time, I wouldn't go out and buy my new Mercedes tonight until I knew more," Cole said.

Cole said winners have to decide what their priorities are, such as charitable giving, establishing a trust for their heirs, or investing. He also emphasized the importance of keeping their newfound abundance as confidential as possible.

Babb said estate planning is a way winners can provide for their children and future heirs for generations. Babb said for the estate and gift tax, there is an $11 million exemption per person, but for such a big payout, winners are looking at paying a 40-percent taxable rate over $1 million, after the exemption.

Babb said winnings would be taxable to Mississippi. He said in Mississippi, the top tax rate of 5 percent will go toward income tax. He said the top federal tax rate is 37 percent once you hit over $600,000, adding that recent tax breaks have brought that rate down from 39.6 percent.

"You're going take that income tax hit when you get the money, and there's probably nothing you can really do about it unless you gave it away, but the estate tax, that would be my first concern, figuring out if I want my children or my grandchildren to have some of this money," Babb said.

Babb said there are also further taxes on wealth after death.

But he said when you are working with a large amount of wealth, winners should consider putting it on a CD, where they can make the equivalent of a decent annual salary to live on all year, on the interest rates of that lumped wealth.

Haire said winners of the jackpot should have four main people on their team.

"Your wealth management advisor, your estate planning attorney, your CPA and your pastor because you're going to need some prayers," he said.

Haire said office pools, or a multi-person pool could get sticky.

"Sometimes there's contracts that have been signed but they're on a cocktail napkin or something loosely written, but for the most part, those tickets can be in one person's name and they just have to the morals and do the right thing and pay everybody," Haire cautioned, adding there have been instances of lawsuits over this.

All three wealth advisors agree, if you don't sign the back of the winning lotto ticket, you could lose out on your winnings.

"That's the thing that you show, to prove you are the owner," Cole said.

cristina.carreon@journalinc.com Twitter: @Ccarreon90

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