Claim Your Lottery Winnings in a Florida LLC
Who will win the PowerBall drawing and what will they do with the winnings! Learn what to do before you turn in your winning ticket.
1.) Whoever wins will not receive their winnings in a lump-sum. If the winner elects to receive a lump-sum, the current estimated payout is based around upon the present value of a stream of payments over 29 years.
2.) Then, you have to subtract federal and state income taxes. The highest federal income tax rate is 39.6 percent; the state rates will range from a high in New York and Maryland of around 8.8 percent to a low of zero in certain states that do not tax lottery winnings (such as California, Pennsylvania and Florida).
Note that the IRS only requires withholding of 25 percent at the time of the payout if the winner gives his or her Social Security Number; the rest of the federal taxes come due with the next estimated tax payment voucher (i.e., April 15th). A winner can file IRS Form 5754 to allocate the proceeds among multiple winners and spread the income tax consequences according to their contributions or other sharing agreement they may have.
Given that lottery winners are sometimes as cursed as they are lucky (i.e., people constantly asking for handouts, others trying to steal the proceeds, the winner having to deal with the complexities and burdens of “excessive” wealth), the natural inclination of a few savvy individuals is to try to remain anonymous and not disclose the fact that they have won. This is not as easy it sounds. Of the 44 states and the District of Columbia who participate in the PowerBall bonanza, only six states permit pure anonymity (DE, KS, MD, ND, OH and SC). Three other states apparently allow anonymity if the winnings are claimed through a trust or limited liability company (LLC). The remaining states (including Virginia and DC) generally require disclosure of the winner’s name, hometown and place where the winning ticket was purchased. Needless to say, the winners will be hounded by the press and others once their names are announced. Each winner, at a minimum, should consider, changing his or her phone number before signing the winning ticket and submitting it to the appropriate state lottery authority.
While it may not be possible to completely hide the identity of the PowerBall winner in all states, it may be possible to create a legitimate smokescreen for multiple winners using an LLC or trust. If you are using either type of entity, you will want to be careful to select the right jurisdiction where the LLC or trust will be subject to the least adverse income tax consequences. Either type of entity can be used to provide privacy for multiple winners. For example, if you use a trust, then each winner will sign a trust agreement agreeing to transfer his or her interest in the winning ticket to the trust and appointing one or more trustees to act on behalf of all of the winners. With this PowerBall jackpot being so high, the prospective winners should consider selecting a corporate trustee or bank to serve in that role. Alternatively, the winners can form an LLC and appoint a single manager to handle the logistics of receiving the winnings, reporting to the IRS and state taxing authorities and distributing the proceeds in the manner they have agreed.
Importantly, the winners should consult with their own attorney as soon as they learn that they have won the jackpot and before they announce this windfall to the world. The attorney should have significant experience in income and estate and gift taxes, as well as trust and LLC planning. The attorney also can help create a sharing agreement or contribution agreement outlining everyone’s rights, powers and responsibilities, as well as the appropriate trust or LLC documentation, on a timely basis. In addition, the winners should individually consult with a CPA and certified financial planner to determine how they will structure the lottery payout and how they will plan their lives following receipt of the lottery proceeds. This team of professionals should be consulted before the winning ticket is signed and turned in, which usually is required within 90-180 days after the winning numbers are announced (depending upon the state). In that way, the winners can maximize the benefits and minimize the stress of being the “chosen ones”.
How to Claim Powerball Winnings Anonymously
Typically attorneys recommends these tips for claiming a winning Powerball jackpot:
- Before you claim your prize, form a blind trust in Florida (Florida LLC) using an anonymous pseudonym. You’ll still be the in control over the trust.
- Sign the winning ticket. That way there’s evidence that it’s yours. Store away the original winning ticket somewhere safe.
- Surround yourself with trusted advisers such as a tax attorney, financial planner, and/or an accountant.
- Have a representative from the trust, whether it’s your attorney or someone else you designate, claim the prize on the entity’s behalf.
- Open a bank account in the name of that LLC, and the money would reside there. As the winner, you would be able to control the entity and how the money is used and spent.
Before you collect your winnings, you may want to think about how you manage your lottery winnings. You may be excited to cash it in, go on a spending spree, pay off any debt, and send checks to your family and friends, aside from the initial payment of income taxes to the IRS. The first thing to do is establish an anonymous LLC. In addition to any tax implications relative to the lottery winnings, including consideration on taking a lump sum or receiving payments, you may wish to have your trust and estate lawyer consider forming a lottery trust.
One question becomes, who manages the lottery winnings that comprise the trust? You may wish to manage it, or have a neutral party do so. Having a neutral party manage it may also help to protect your privacy. The trustee would be responsible for managing and investing the trust monies once received. You may even need your own wealth management team, with your attorney, your financial planner, your trustee, and others on board to assist. But to get to this point, you have to first determine with your trust and estate player how best to claim your lottery winnings.
One of the first things to consider is anonymity. Some states, including Florida, publish the names of lottery winners, together with the winner’s city of residence, the game and date won, and the dollar amount won. Anyone – meaning any third party – can request this information from the state of Florida, for example. If you do not want that information to become public, only the name of the trust would become public. So, in an effort to protect your anonymity, a trust may be a consideration, with an anonymous-sounding name. This means that the ticket is given to the trust and then the trust would then claim the lottery winnings. Someone else, such as your trustee or your lawyer, could then claim the winnings in the name of the trust.
A further consideration is when family members or co-workers have a lottery pool. A trust can help ensure equal distribution of the winnings, wince just one entity can claim the winnings for a specific set of winning lottery numbers. This trust could be in the form of an irrevocable trust, so that the winnings can be equally distributed to the multiple parties without having to rely on one party to distribute them, and since typically it cannot be altered, it may help to prevent future disputes.
A relatively recent Florida Supreme Court case discussed the lottery pool idea and whether an oral agreement to split lottery proceeds was violative of Florida’s Statute of Frauds (an agreement that could be enforced within a year). In Browning v. Poirier, 165 So. 3d 663 (Fla. 2015), the Florida Supreme Court reviewed an oral agreement between a boyfriend and girlfriend who lived together and orally agreed to split the proceeds of any winning lottery tickets. When she won, and he demanded his one-half, she refused to pay him, which led to the suit he filed for breach of an oral contract. She defended, claiming a defense of statute of frauds. Ultimately, the Florida Supreme Court determined that the oral agreement to split the proceeds of the lottery winnings falls outside of the statute of frauds, because it conceivably is an agreement that could have been completed within a year.
Perhaps if Browning and Poirier spoke with a trust and estate lawyer about the winning ticket in advance of demanding the funds from one another and filing suit, they would not have become involved in such a suit and instead could have established a Florida lottery anonymous trust for their winnings.
Forming the trust should happen in advance of claiming the lottery prize. There are nuances and variations in every situation and it is best to speak with your trust and estate lawyer to determine if setting up such a trust for their winnings.
Forming the trust should happen in advance of claiming the lottery prize. There are nuances and variations in every situation and it is best to speak with your trust and estate lawyer to determine if setting up such a trust for you and your family is best to claim lottery anonymously.