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What I Would Do if I Win the Lottery-A financial planner’s perspective

Rajesh Jyotishi Email Rajesh Jyotishi
April 2006
What I Would Do if I Win the Lottery-A financial planner’s perspective

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As I was watching the new winners of the $365M Powerball lottery at the gym, my thoughts wandered. As a financial planner, what would I do if I won the lottery? The financial plan that I came up with is a bit unconventional, but I think you may find it interesting.

The first thing I would do is create a charitable foundation and donate a good portion of the lottery earnings into the foundation, which would give me immediate tax deductions and reduce a large amount of potential income taxes.

As the president and CEO of my new foundation, I would take a reasonable starting salary. Instead of gifting large sums of money to my immediate family and friends, and thereby possibly subjecting myself to potential gift taxes, I would invite them to work for my foundation at more than reasonable salaries to help me find worthwhile organizations to donate to. Together, we could travel the world and help people all around the world for various things.

I would strive to grow my lottery winnings at an average rate of 8% by investing wisely. I would distribute 5% of the foundation assets to worthwhile organizations each year.   The remaining earnings, I would keep in the foundation allowing them to grow.

For simplicity sake, let's assume I have $100,000,000 in a foundation which grows at 8%, and distributes 5% per year. At the end of the first year, I would be able to distribute $5M to worthwhile causes, and have $103M left over. Each year, the assets of my foundation as well as the distribution amounts would grow. Over the span of 20-30 years, the amount in the foundation, and the distribution amounts would be mind boggling. The foundation can have successor advisors which could be family members, if I desired. They can operate the foundation for generations to come. Much better than paying taxes and squandering it, isn't it?

The financial benefits would include reduction in income taxes, estate taxes and gift taxes just to mention a few. The personal benefits would be that I could teach philanthropy as well as social responsibility to my children and future heirs. I would be a lesser candidate for frivolous lawsuits because most of the assets would not be owned by me. My children would be less prone to kidnapping or squandering their lives. If they were to marry and get a divorce, the foundation money would still be intact. I would have a sense of purpose and be able to leave a legacy to be remembered by.

Compare this to the traditional method of taking the money now, paying the income taxes, possibly paying gift taxes while gifting to other people and also paying estate taxes after death, and possibly squandering the money all together. Interestingly, it is said that most lottery winnings are squandered within 3 years. Many people who have won the lottery tickets in the past have said it was the worst thing that has happened to them. They didn't know how to handle the wealth and the responsibility that came with it.

Oh well, I guess this is why they say, when it comes to the lottery, it takes just a dollar to dream. In my case, I didn't even buy a ticket.

By Rajesh Jyotishi 

Securities offered through Resource Horizons Group, L.L.C. Member FINRA, SIPC
Advisory services offered through Resource Horizons Investment Advisory, Inc.
1350 Church Street Ext. NE , 3rd Floor Marietta , GA 30060

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