Q&A: How does a lottery winner find a financial advisor she can trust?

Dear Liz: I’m a middle-aged, single, childless woman who won a very nice lottery prize. I took the “cash value” option and after paying federal tax, I was left with $1.2 million. I would like to pay cash for a home, have a tidy nest egg put aside and have money for travel and other occasional luxuries. I also receive a disability pension of $1,800 a month, which includes medical and dental benefits. Do I need a financial planner at this point? I was figuring I knew what to do, but may need an expert to help me go about doing it.

Answer: One of the things you’ll notice, if you haven’t already, is how people will come out of the woodwork to “help” you with your money. Some position themselves as advisors, while others will be offering “business opportunities” or just looking for handouts.

You would be smart to seek out a trustworthy fee-only financial advisor to help make the most of your money and to deal with all those who want to part you from it. The phrase “That sounds interesting — let me run it past my financial planner” can short-circuit a lot of importuning.

The planner can help you determine a safe spending rate for your windfall and discuss some issues you may not have considered, such as the need for more liability insurance (since you’re now a bigger lawsuit target) and a plan to pay for long-term care.

The advisor you want won’t be found at your doorstep or in your email box, begging for your business. The best planners are too busy advising to run after lottery winners. You can find referrals to fee-only planners at the National Assn. of Personal Financial Advisors (www.napfa.org) and the Garrett Planning Network (www.garrettplanningnetwork.com). Interview at least three and make sure they’re willing to sign a fiduciary oath to put your interests first.

Q&A: Dealing with a big lottery win

Dear Liz: My brother-in-law won a good chunk of money playing the lottery. He is waiting for the check to come any day now. He is willing to give me $2 million. The question for you is how I can maximize that amount of money short term or long term?

Answer: If your brother-in-law has any sense at all, he’ll realize he shouldn’t have promised any gifts before he assembled a team of professional advisors. And they almost certainly will have a dim view of him giving you a seven-figure sum.

Handouts that large have gift tax consequences. Anything over the annual exemption amount, which this year is $14,000 per recipient, has to be reported on a gift tax return. Amounts over $14,000 count against his lifetime exemption limit, which is $5.45 million this year. Once that limit is exceeded, he’ll owe substantial tax on any gifts.

Also, the $5.45-million limit is for gift and estate taxes combined. Any part of the exemption he uses during his lifetime for gifts won’t be available to shield his estate from estate taxes when he dies. Although, given his apparent generosity, he may not have enough left at his death to trigger an estate tax.

It’s not uncommon for those who receive large windfalls to wind up broke, especially if the amount is much larger than they’re used to handling. More than a few professional athletes and lottery winners have wound up in bankruptcy court. They spend or give away money at a clip that simply isn’t sustainable.

Which may be the road down which your brother-in-law has started. You can take advantage of your relative’s ignorance by holding him to his pledge or you can do the right thing, which is to encourage him to hire fee-only advisors — including a CPA, an estate-planning attorney and a comprehensive financial planner who’s willing to sign a fiduciary oath — to help him deal with this windfall.

Monday’s need-to-know money news

lottery-ticket-jpgToday’s top story: The high cost of winning a billion dollars. Also in the news: Tips for tackling your student loan costs, how banks are earning billions in ATM and overdraft fees, and basic personal finance facts people constantly get wrong.

The High Cost of Claiming Your Powerball Jackpot
Winning a billion dollars is awfully expensive.

5 tips for tackling your student loan costs
Tackling them head on.

ATM and overdraft fees top $6 billion at the big 3 banks
How much did you contribute?

Six Basic Personal Finance Facts People Constantly Get Wrong
No more excuses.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story : How to avoid annoying mortgage hurdles. Also in the news: A financial health checkup, how to keep your online tax returns safe, and what to do if you win tonight’s Powerball jackpot.

4 Annoying Mortgage Hurdles & How to Overcome Them
How to have all your ducks in a row.

The 4 Most Important Money Issues That Determine Your Financial Health
Time for a temperature check.

Tips for Keeping Online Tax Returns Safe From Thieves
How to protect your money and your information.

What You Should Do If You Win the Powerball Jackpot
Besides fainting from shock.

10 Simple Money-Saving Tips That Carry A Big Bang At The End Of The Year
Small actions that could lead to big savings by the end of the year.

Tuesday’s need-to-know money news

Today’s top story: How to stop the barrage of credit card offers. Also in the news: How to lower your property tax bills, keeping your financial resolutions, and why playing a lottery that you’ll never, ever win could be a good thing. 3509554-lottery-ticket

How to Stop Getting Credit Card Offers in the Mail
Opting out of the onslaught.

How to Lower Your Property Taxes
Three steps to cutting your tax bill.

Three Ways to Keep Your Financial Resolutions in 2014
How not to break your resolutions by January 2nd.

Why Playing The Lottery Is A Good Investment
Yes, you read that correctly.

Rules to Follow When Giving Gifts in the Office
Navigating the dreaded gift swap.

More mega millions madness: Money pros weigh in

Here’s a recent post from Credit.com where a bunch of us money types hold forth about the lottery:

Mega Millions Madness: Money Pros Weigh In (via Credit.com)

Let’s face it. When it comes to things like lottery jackpots, personal finance experts and writers tend to be wet rags. We usually put lottery ticket purchases in the same category of money sins as bottled water or spending $5 for a cup of coffee that can be brewed at home for 25 cents. But whom…

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You’re not going to win the lottery. But if you do, read this.

With so much talk about the record Mega Millions jackpot, I thought I’d throw in my two cents:

First cent: You’re not going to win. The odds are ridiculous.

Second cent: If you should win this or any other windfall, even a much smaller one, you’ve got some work ahead of you.

If you’ve never had money, you may not realize how much effort it takes to manage it wisely–and not lose it. You don’t want to wind up like the folks featured in SmartMoney’s “Why lottery winners go bankrupt“–lottery winners who went bust, or even to jail.

So here’s my MSN column “You won the lottery. Now what?” When you don’t win, you can still read it for advice about what to do should any major windfall enter your life.