Won the Lottery? What happens next…
By Balance team, May 18 2017 05:39PM
Most of us will never experience a big win on the lottery, but if you are lucky enough to see your ticket hit the jackpot, what do you do next? Even if you haven’t won the lottery, you could find yourself inheriting a small fortune. Acquiring unexpected wealth brings with it a range of different considerations, as well as emotions. We explore this subject further, giving you a guide on what to do next, if you do strike gold.
Firstly, congratulations! Your initial reaction is likely to be a mix of shock and excitement. Take your time for the news to sink in. Once reality sets in, you might find that you have no idea what to do next. Winning, or acquiring, a large sum of money will have a direct effect on your personal relationships. Although your family and friends will initially congratulate you on your win, you may also encounter a degree of jealousy and resentment from people. If you have been living on a tight budget for many years, being able to spend frivolously can easily result in you quickly frittering away your win. There have been well-publicised cases where people have won millions on the lottery, only to find themselves bankrupt a few years down the line. You may also be surprised to learn that some lottery winners have ended up depressed. This is usually because having a lot of money tends to lead you into a new lifestyle, one of which your family and friends cannot relate to. This could put pressure on your partner or spouse, and there have been cases where relationships have broken down after a big lottery win. Being aware of these potential issues can help you avoid them if your numbers come in!
Do I go public?
You may decide to remain anonymous, which is an option offered by Camelot who manage the National Lottery. It is a common misconception that you win less if you stay anonymous – this simply isn’t true. However, people have found it very difficult to keep their news private, due to their new spending habits. If you do go public, one of the problems many winners experience is the increased level of risk. It is not uncommon for lottery winners to receive numerous begging letters, which can be incredibly difficult to handle. Plus, you may need to look at security, both personal and for your property, depending on the amount of money you have won. You may also find that your own family and friends start coming to you for financial support, which may or may not prove difficult to turn down. By remaining anonymous, you may find it easier to filter your news appropriately to the people you trust the most. However, to avoid unwanted attention, you will need to plan how to spend your money.
Make a plan
Before you buy that Ferrari or decide to move into 5-star accommodation, you need to have a realistic idea of how long your money will last before you start spending. The next step would be to create a robust financial plan covering how you intend to use your newly acquired wealth. This is a really exciting prospect, although also very daunting for most winners as all the fantasy lottery win scenarios start to become a possible reality. Despite your big win, a realistic budget will ensure you keep your money for as long as possible and make the most of it – ideally, for the rest of your life. Striking a sensible balance between really enjoying your newfound wealth and looking after it carefully, is absolutely essential.
Ask yourself the following questions:
• Would you like to move to a new home? If so, how much will it cost year on year to maintain your new property?
• Do you want to travel? If so, how much will it cost to visit your dream destinations? If you decide to travel for a number of months – or years – calculate the cost of flights, accommodation, meals and spending money over the period of time you plan to be away.
• Do I want to support family or special causes? If you have family members you would like to help – repaying mortgages for example, how much would you need? Do you want to give them money outright or give it with special provisions attached? Do you want to support particular charities or causes, or have you even received enough of a windfall to set up your own charitable trust?
Should I invest?
Sensible investing is a sound way to make the most of the money you don’t want to spend. Ultimately, you will need to look at the level of risk you are willing to take and we recommend diversifying as much as possible. Putting your wealth into investments with preferential tax treatment, such as ISAs, pensions and offshore bonds, can be a real consideration.
Should I worry about tax?
The short answer is ‘yes, absolutely’. You will usually be subject to tax on the income and growth of your new wealth and simple planning can keep that to a minimum, so you preserve your financial position as much as possible. What’s more, as the value of your estate will have grown significantly, you may wish to take measures to prevent inheritance tax liabilities in the future for your children or other dependants.
For more information on how to deal with a lottery win, please visit our Big Life Events – Lottery Win page.
If you are affected by any of the points raised in this article, or if you have acquired a large sum of money you would like to manage, please get in touch and speak to one of our financial planners for advice.
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