By: Olivia Glauberzon, Special to the Star, Published on Tue Jan 26 2016
When it comes to buying lottery tickets like ones this month’s $1.5 billion Powerball, players put plenty of thought into picking their numbers. But how much goes into the plan if they actually win?
In 2001, Vicki Damant was close to the dream that many lottery players have: second place to the jackpot. A Torontonian living in the U.S. at the time, to her shock, her ticket had five of the six winning numbers.
“It was 7:30 a.m. on a Sunday morning. When I check the numbers on the computer, I had one match, then another, then another . . . then I started screaming,” says Damant. “I was so loud that my husband came running into the room thinking he had to kill a spider.”
While the couple hadn’t won in the millions, Damant did win $103,682 (before tax, as it was a U.S. lottery; in Canada, lotto winnings aren’t taxed as income).
“That’s when we started making all of our phone calls,” she says. “It wasn’t a life-altering amount of money, but it was enough that we were able to buy ourselves new cars, invest in an annuity and send both of our parents on vacation.”
Whether you’ve won a modest amount like Damant or $528 million (U.S.) like one Tennessee couple this month, here’s what the financial experts say you should do next:
1. Cool off for 30 days
That’s the suggestion of Larry Moser, regional manager with BMO Investor Line, based in Ottawa: “You don’t want to start writing cheques before you have a chance to figure out how you want to spend your prize.”
Since most lotteries are required to make the winners’ names public, the prize announcement (depending on its size) can wreak havoc on your personal life. “All sorts of people are going to come out of the woodwork. I’ve even heard of people getting blackmailed,” says Moser. “You need to be prepared for how you’ll handle various situations.”
A cooling-off period also gives you time to reflect on how the winnings will add to your happiness, says Ted Rechtshaffen, president and CEO, TriDelta Financial, a Toronto-based independent financial planning firm. “Whether you’ve won $500,000 or $500 million, it’s not about the investments you make, it’s about how the money helps your lifestyle going forward.”
Rechtshaffen recommends using the old adage of “Spend $1, save $1 and give $1” to allocate the winnings to your personal and financial goals. Just be warned, adds Rechtshaffen, that deciding how much you want to spend, save and give can be a complex psychological and emotional undertaking. “You may want to talk to a psychologist before doing anything else . . . that could be the best investment with your winnings you’ll ever make.”
2. Get professional help
Once you’ve figured out how to divvy up your winnings, find a lawyer or financial advisor who can help structure a financial plan for you.
“Whatever you do, don’t go flipping through the phone book and call the first lawyer or investment advisor you see,” says Moser. “Ask your friends and family for someone they recommend and trust.”
Another way to screen for a good advisor is by noting the balance of personal versus financial questions he or she asks you. “The best advisors will always spend more time figuring out who you are as a person before structuring a plan,” says Rechtshaffen.
3. Calculate your income needs
Depending on how much you’ve won, you may decide to stop working or splurge on a big-ticket item like a house, trip or boat.
Just don’t blow all of your winnings on one big trip to Vegas, says Moser. “Every dollar you spend today is less you have to invest for tomorrow.”
A financial plan will help you determine how much money you need to maintain the lifestyle you want to lead without working, especially if it includes a larger home or second property with bigger annual expenses.
4. Sort out your give-aways
Decide how much money you’ll give away to charity, family and friends. Like Damant, it’s not uncommon to want to share your newfound fortune with family and friends, or your favourite charity.
“With family and friends, one idea might be to share your good fortune in the form of a one-time only gift,” says Rechtshaffen. “If you are disciplined about it, you will be less vulnerable to being asked for money down the road.”
For charities, giving can be complex depending on the amount of the donation.
If you are planning to donate over $5 million, Rechtshaffen recommends setting up a private charitable foundation. “By donating through a foundation, you have an ability to generate large tax credits you can use to offset any investment income you may have.”
If you want your foundation to continue donating long after you are gone, Moser says it’s also critical to hire an estate lawyer for the set-up. “You won’t be able to set this up yourself with a $29.99 kit you buy at a store.”
5. Invest tax efficiently
Once you’ve determined how much money you’ll need for your lifestyle and how much you can part with, chances are the amount left over may be too much to place in a registered savings account. This leaves your wealth in unregistered territory, which makes minimizing tax exposure on income-generating investments a priority.
Investments can range from a diverse equity portfolio — which takes into account your risk tolerance — to a permanent life insurance policy, which allows you to grow your money tax-free.
“An advisor will help you navigate your investment options and do so in a way that minimizes your tax exposure,” adds Rechtshaffen.
Multigrain bread is bread that is made with more than one type of grain. Multiple grain products can be made in any fashion, including bleaching and starching and using the less nutritious part of the grain. This product maybe refined which means the healthy parts, such as the germ and bran are removed and the grain is enriched with chemicals and bleached. Don’t be quick to assume that multigrain products are healthy products. We know they can be made in multiple fashions, and could contain as much refined grains that are devoid of nutrition as the basic bleached white flour. You can’t even assume that at least your getting some grains and their nutrients, because you may only be getting as few as two different grains. And, if the grains are refined, they’ll be lacking in original nutrients and fiber.
