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Whoever bought the Powerball lottery ticket in Cabot on Dec. 24 worth $1.8 billion has done at least one thing correctly, according to financial advisers: remain anonymous.
Whatever decisions made after that will have to face the test of time, but embracing anonymity is a crucial first step. That secrecy eliminates some of the pressure that comes from a sudden windfall of untold riches.
“I would want anonymity,” said Jerry Borden, owner of Borden Wealth Management in Conway. “We would recommend to the client: Hire an attorney and do not tell one soul anything.
“Do not claim the prize yourself. Hire an attorney and let the attorney claim the prize in the name of a trust that would have nothing to do with the name of your family.”
Gail Murdoch, who has represented past lottery winners, half-joked that her advice for lottery winners starts a bit before anonymity. First, if your ticket matches the winning numbers, protect the ticket by putting it somewhere safe, said Murdoch, the owner of Cardinal Investment Group in Conway.
Murdoch, Borden and other financial advisers in Arkansas have increased their chances for working with a lottery winner after the Powerball Lottery announced that the March 2 winning ticket for the $251 million grand prize had also been purchased in Arkansas.
Most lottery winners take their winnings as a lump sum payment that is about half of the promoted winning amount. After federal and state taxes are paid out, the lottery winners receive significantly less money than the headlines proclaim, but the proceeds are still life-changing and stressful.
“I would definitely advise that they take their time and create a well-thought-out plan with both financial and legal professionals before they proceed,” Murdoch said. “Definitely don’t do anything hasty. Take your time and really make a plan, because you need to make sure you understand whatever tax consequences there might be, and plan for that.
“You also want to protect these new assets from outside influence. I think you might find out you have a lot of friends you didn’t know you had.”
Different Strokes
Borden said financial advice will differ in as many ways as people themselves differ, based on their goals.
Whether it is lottery winnings or a sudden inheritance, people on the receiving end of windfalls will have different ideas of what they want the money to do. Some may want to start a business or buy real estate or go heavy into philanthropy. Others may go on buying sprees for themselves and family members.
Lottery history is full of examples of winners going through their windfalls like wildfire, ending up unhappy and in debt or worse. Some major lottery winners have even said that winning the lottery was the worst thing that ever happened to them.
The stories of happy lottery winners, or rich heirs, who wisely invested their money and lived within their newly elevated means aren’t told nearly as often.
“You just never know, but most of the time, if a person hasn’t been disciplined in their life and they inherit or they win, that money goes through their fingers as fast as they want it,” Borden said. “We see it a lot in our practices. We talk about this stuff all the time, where Grandma and Grandpa worked their fingers to the bone, and they did everything they could to save every penny they could. As soon as their 55- to 60-year-old kids inherit, the money is gone within 12 to 18 months because they never had the discipline.”
Borden said he has never represented a lottery winner, but he has advised clients who have come into substantial amounts of money through other means. He knew one potential client, a man in his 20s, was hopeless when Borden tried advising him about $1 million he had just come into.
“He had it completely spent to zero within 12 months,” Borden said. “We discussed a plan and what we could do with this money, and how much money per month that would generate for him, so that he wouldn’t touch his principal. He just decided, ‘Nope, I’m gonna spend it.’ And he spent every bit of it.
“[I]t’s easy to tell in a conversation with somebody for 30 minutes who’s going to keep the money and do well with it and who’s going to blow it by the attitude of the conversation.”
The Taxman Cometh
When Domingo Olvera Vega won $50,000 in the Arkansas Scholarship Lottery in 2024, he didn’t speak with anyone for any advice.
Vega did invest the money without outside help, putting it away in certificates of deposit. He said the tax bite on his winnings left him with about $35,800.
“I try to save our money for building the house or maybe for my kids when they go to school,” said Vega, of Sparkman. “I’d like to have some money when they go to college. I saved it all.
“Taxes took a big chunk.”
Taxes are often the overlooked factor in windfalls. For inheritance recipients, federal law puts the threshold at $15 million for estate taxes, and then there are state inheritance taxes.
“You don’t want to spend too much and then figure out you owe taxes on money that’s already spent,” Murdoch said. “People who come into money obviously need to be careful about the taxation and set aside that money to pay the taxes, because that can be a terrible surprise later.”
That’s a major reason why financial advisers such as Murdoch and Borden recommended people put together a team if they have come into a lot of money. That team should include a financial adviser, an estate planner and a tax attorney or CPA.
“I would suggest bringing three very important people to the table,” said Jennie Clark Stewart, the regional managing partner at Kutak Rock in Little Rock and an estate planner. “We all wear different hats, and I think it is important to have them all together and talking. The first thing you want to do is not miss any tax payments.
“A lottery, that’s income so you would pay income tax on that. Inheritance might not be subject to the estate tax, but [if you’re] winning the lottery, pay taxes first; they do withhold some to make sure that happens there. If you invest it all, you have to pay estimated taxes throughout the year, because it’s not like your W2 and your work’s taking it out for you.”
Just Say No
Murdoch said she has represented lottery winners in the past, winners of much smaller amounts than the recent heralded Powerball winners.
She said windfall recipients shouldn’t necessarily be selfish, but they should protect their financial blessings. If someone pressures them about money, whether it’s a relative or a friend with a fail-safe investment idea, having a financial advising team serves as a good excuse to say no.
“It’s really nice to have a professional you can bounce your ideas off of so that you don’t do anything without thinking it through,” Murdoch said. “But also, it’s kind of nice to have a financial professional that you can use as an excuse: ‘Well, let me talk to my attorney or my financial adviser or my accountant.’ You want to certainly talk to all those people if it’s a big amount of money.”
Borden said a massive windfall like a lottery prize can cause enormous stress on someone who has struggled when money was tight. More money could just exacerbate the lack of discipline.
“It’s hard to save (because) it takes discipline even if you don’t make much money,” Borden said. “If it’s a lottery-type situation where there’s big publicity and everybody knows because you can’t keep your mouth shut and you tell all your cousins — literally, the entire family is going to be [on] Instagram, Facebook, Snapchat, something, and everybody and their brother is going to be coming at you.”
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