What Should You Do if You Win a Massive Lottery Jackpot?
Lottery winners are prevalent in Brampton, and while we are a lucky city, understanding how to manage a large sum of money is important for anyone who receives an unexpected financial windfall.
While winning the lottery is both exciting and overwhelming, anyone who wins a large lottery prize is susceptible to risks. Some winners might splurge their winnings, some might be harassed by friends and family for a dollar amount of their prize for their own financial benefit, and some may just make irresponsible or impulsive decisions with the sum.
While everyone should strive to make smart financial decisions, winning a large sum of money and settling into that new reality sets the stakes higher for making rational decisions with one's money.
So, what happens when you first win the lottery?
"Sometimes winners come in immediately and then they're clear to receive their prize," said Galit Solomon, OLG's Manager of Media Relations. "Then, it's their prize and it's up to them what they do with it."
The prize claim review process begins with validating a signed lottery ticket at either a retail location or a gaming site, followed by a support centre call to the claimant for next steps.
According to Solomon, if the prize exceeds $250,000, the claimant must go into the OLG prize centre in Toronto to claim their winnings.
The claimant is then asked a few questions to ensure they are the rightful winner, such as where they purchased the ticket, what game they played, and what method of payment they used. They're then declared the winner, they have their photo taken, and a news release is sent out with information about the win with the claimant's photo.
"Once they receive their prize, it’s really up to them how they spend it," said Solomon. "We advise that they seek the advice of a financial advisor or a lawyer to help them settle into their new reality."
Financial advisors are teeming with tips and advice on how to manage lottery winnings, including taking a breather before doing anything with the money, managing investments and savings, and figuring out what the winner's goals and objectives are to tailor a financial plan to their needs
Vice President, Branch Manager, and Portfolio Manager at TD, Cynthia Caskey advises that lottery winners think like small business owners, understand their own goals, values, and objectives, and be informed on financial literacy.
"As with any client we sit down with, it's about coming back to the touchstone of your values, and coming back to what’s important to you and your loved ones," said Caskey.
According to Caskey, when lottery winners sit down with financial advisors, there are a multitude of points to be discussed.
That includes the winner's values and what's important to them, understanding their goals, objectives, and priorities, their past experiences with money, how they make decisions, some basics around estate planning, powers of attorney, and risk tolerances.
As a lottery winner settles into their new reality, Caskey described the process of receiving financial advice as analogous to having clothes tailored. A financial advisor helps a winner tailor a financial plan for their winnings based on their current reality and objectives, just like a tailor adjusts clothing based on one's current body type.
"Some fun and some frivolity will be a part of this, but hope is not a financial strategy," noted Caskey.
Setting priorities is of utmost importance to the process of creating a financial strategy after winning a large sum of money, whether that's traveling, investing or focusing on annuities, paying off debts, helping out a family member, or buying a house or a car.
Caskey advises winners to think like small business owners with their money.
"You want to try and think about what advice you'd take as a business owner, and what steps you'd want take if you had other people relying on you to make really good choices," said Caskey.
This includes assembling a trusted team of legal and financial advisors with good credentials and experience from a trusted institution, and doing some big picture thinking to narrow down individual financial goals and objectives.
"We would want to make sure they had good connections and solid advice that came together in their financial picture," said Caskey. "We want to make sure we offer some other services and we're able to bring in other service providers for other dimensions of advice. Legal and tax advice are a natural part of someone's wealth solutions."
Budgeting and flexibility are also a large part of the process of managing large lottery winnings.
Ongoing spending should be considered with any large purchases. For instance, if a winner buys a mansion, they've got to budget for ongoing property taxes and maintenance, or if they buy a vehicle, they've got to budget for extra insurance costs.
Winners are also advised to be wary of the reaction they'll get from the people around them when they reveal they've won a prize. Anonymity or limiting the number of people who know about the win can be a helpful preventative measure.
"Sometimes the people closest to you can be the hardest on you," said Caskey. "We do find a number of lottery winners do take time to cash in their lottery tickets."
Taking time to cash in a lottery ticket can be helpful in making more rational decisions with the money, but it’s also a good idea to put the money in a high-interest savings account as soon as possible for a higher return.
Ultimately, Caskey said that lottery winners, or people who receive an inheritance or a large, unexpected amount of money from any source are in "uncharted territory" where they are "emotionally and financially vulnerable."
Financial advisors come in "not only to understand their needs, but to help them try to make their best decisions and maintain flexibility in their financial plan," said Caskey.
Lottery winners are decision-laden, and while the experience is thrilling and unexpected, it can also be tough to take next steps.
"Different people make choices in different ways," said Caskey.
What might be the next steps for one lottery winner could be the opposite of the next steps for another. Either way, there are methods to the madness whether someone wins $100,000 or $1,000,000, and seeking legal and financial advice, prioritizing spending objectives, and thinking about the bigger picture are just a sample.
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