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If you win the Powerball, you’re not doomed to live out the lottery curse. These are the steps you should take to manage your new fortune wisely. 

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Someone in California is $1 billion richer after picking the winning Powerball numbers Wednesday night. If you’re the lucky person who defied the 1-in-292,000,000 odds, you may be wondering: “Don’t most lottery winners end up broke within a few years?”

Whether you’re holding a winning Powerball ticket or you’re hoping to hit the jackpot someday, here’s what to do to avoid going broke.

1. Keep it quiet

When you win the lottery, your first impulse may be to shout your news to the world. Resist the urge to blab. Expect that if news of your big prize becomes public, you’ll be bombarded with scammers peddling “investment opportunities” and third cousins you’ve never met asking for money. Many lottery winners are also targeted by frivolous lawsuits.

The level of privacy you’ll be afforded boils down to where you bought your winning ticket. Eight states allow lottery winners to stay anonymous. But in most other states, winners can’t shield their identity. For example in California, where the winning ticket was sold, the winner’s name and where they bought their ticket will be a matter of public record.

Even if you can’t be completely anonymous, do whatever you can to stay out of the spotlight. If possible, avoid a news conference and posing for a photo with a giant check. You may want to set up a P.O. box, change your phone number, and make your social media profiles private or delete them altogether.

2. Hire an attorney, an accountant, and a financial advisor

Whenever you come into a huge amount of money, you want to assemble a team of professionals. It’s essential to hire an attorney, a certified public accountant (CPA), and a financial advisor. Look for professionals who have a solid track record of working with people who have received major windfalls, like inheritances and settlements, even if they haven’t worked specifically with lotto winners.

3. Decide whether you want annual payments or a lump sum

The winner of Wednesday’s Powerball will have the option of claiming a lump sum of $516.8 million or receiving an annuity consisting of 30 annual payments that increase by 5% each year. So you’d receive about $33.33 million the first year, followed by $35 million the next, etc.

These are exactly the type of decisions you should make with the assistance of the financial pros you’ve hired. If you opt for the lump sum, as most lotto winners do, work with your team to develop an investment and withdrawal strategy. Of course, if you opt for the lump sum, you’ll have over half a billion dollars in cash, so you don’t need to earn big gains. Aim for a conservative mix of investments to preserve the principal without taking major risks.

If you’re concerned that you’ll be one of those Powerball winners who succumbs to the lottery curse, consider taking the annuity. Even if you make mistakes with your money, you’ll have more funds coming in.

4. Plan for the tax bill

Whether you take the $516.8 million lump sum or you annuitize the $1 billion, expect to pay a lot in taxes. Lottery agencies are required to withhold 24% of prizes above $5,000 for federal taxes. But either option will easily push you into the 37% tax bracket, so that will leave you owing a large chunk to the IRS.

Again, consult with your financial professionals about tax strategies. You’ll pay taxes on the lump sum amount upfront, while an annuity would spread out the tax bill over time. While you’d have to pay a huge tax bill at once with the lump sum, at least you’re locking in current tax rates. If you choose the annuity, your future payments could be taxed at an even higher rate if tax rates go up.

You’ll also need a plan for estate taxes — something you probably didn’t need to worry about before you won your jackpot, as estates valued at $12.92 million or less aren’t taxed as of 2023.

5. Decide how generous you want to be

An important topic to discuss early on with your attorney, CPA, and advisor is how much of your money you want to give away. Remember, everyone will have their hand out once word spreads that you’ve won the lotto.

Try to set a budget for how much of your newfound wealth you’ll give to loved ones and charities. If you give away more than $17,000 (or $34,000 if you’re married) to any individual in 2023, you’ll need to file a gift tax return with the IRS. You can make unlimited gifts to individuals for up to $17,000 (or $34,000 if you’re married), but any gift above that amount will trigger a gift tax return. Making gifts to individuals while you’re alive — referred to in estate-planning parlance as lifetime giving — won’t lower your income tax bill, but it can reduce the size of your taxable estate.

Also consider whether you want to give money to charity, either by making donations, or establishing a charitable trust or foundation. Charitable giving can help you lower both income taxes and estate tax liability.

6. Update your estate plan

When your financial situation changes drastically, it’s important to update your estate plan. A last will and testament may be sufficient when your finances are relatively simple. But you’ll probably want to set up a trust so you can have greater discretion over how your assets are distributed.

For example, you may not want your kids to inherit hundreds of millions of dollars when they turn 18. Setting up a trust would allow you to dictate that the payments will be made in installments, or set certain requirements for them to receive their inheritance.

Should you bother playing the lotto?

Assuming you’re not in possession of a $1 billion Powerball ticket, maybe you’re wondering: Is it worth spending your money to play?

Before you play the lotto, make sure you’re taking care of your other financial priorities. That means you’re not carrying high-interest debt, you have an emergency fund, and you’re funding your retirement accounts.

Remember how low those odds of winning are: For the latest drawing, it was less than 1 in 292 million. It’s fine if you want to set aside a few bucks from your entertainment budget to play, but picking the winning ticket certainly shouldn’t be part of your financial plan.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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