How many of us have wanted to win the lottery? I have. How would winning the lottery effect your estate plan? This article is the first of a two part series. Here we take a look at avoiding pitfalls, even if you did not win the lottery. The second part concerns planning strategies to consider.
Last week, a very lucky individual in San Jose, California, purchased the winning Mega Millions Jackpot ticket, matching all six numbers. The winner can choose between payments totaling $543 million, or a lump sum cash option of over $320 million.
If you won $320 million, what would you do? The first thing to do would be to see your estate planning attorney! There are many issues which could arise. Your estate planning attorney could help you navigate these many pitfalls.
A Tale from the Past
Here’s the tale of a lottery winner years ago who did not heed this advice and the trouble she encountered:
On March 6, 1999, Ed Seward purchased some lottery tickets in Florida. He gave some of the tickets to employees of a Waffle House restaurant he frequented in nearby Grand Bay, Alabama. One of those employees was Tonda Lynn Dickerson. Dickerson’s ticket turned out to be the winning ticket, which she took as 30 annual installments of $354,000 each, or over $10.6 million. Here’s an article with more information.
Dickerson had many issues with her win. First, her fellow employees claimed they had all agreed to split any lottery winnings any of them received. Dickerson disagreed and they ended up in court. The court found the agreement existed but was unenforceable in Alabama as it related to gambling. Seward also sued Dickerson, claiming that she had promised to split the winnings with fellow employees and that she promised him a pickup truck. While Seward lost in court, it demonstrates you shouldn’t make idle promises.
Dickerson formed a corporation and received 49% of the stock, while the other shares went to various family members. She then contributed the winning lottery ticket to the corporation and had the corporation cash the ticket. Since Dickerson only owned part of the corporation, the contribution of the lottery ticket created a gift to the other owners of the corporation. Unfortunately, since the gift of the lottery ticket was well in excess of her gift tax exclusion, this resulted in a gift tax due of over $771,000. Here’s a link to the court decision.
Dickerson could have planned much better and could have avoided much of this tax by giving the money gradually and taking advantages of annual gift tax exclusions.
In the next blog in this series, we’ll look at planning strategies for lottery winners.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
- Leaving Assets Can Be Tricky – Part 3 - October 15, 2020
- Leaving Assets Can Be Tricky – Part 2 - October 8, 2020
- Leaving Assets Can Be Tricky - October 1, 2020
