Winning the lottery is a dream come true for many people. With the Mega Millions jackpot recently reaching over $1 billion, Illinois residents are eager to try their luck. But what should you do if you are lucky enough to win it big in the Mega Millions lottery in Illinois? Here is a guide to help you make the most of your lottery windfall.
Claim Your Prize
The first thing you’ll want to do is claim your prize. For Mega Millions prizes over $250,000, you’ll need to make an appointment at one of the five Illinois Lottery Prize Centers in Chicago, Des Plaines, Rockford, Springfield or Fairview Heights. Be sure to sign your winning ticket and bring two forms of ID when you claim your prize. You’ll have 12 months from the date of the drawing to claim your Mega Millions jackpot.
Illinois does not allow lottery winners to remain anonymous, so your name will be made public. However, you can have your winnings paid to a trust or other legal entity to help maintain your privacy. Consider speaking to legal counsel about the best way to claim your prize while minimizing publicity.
Decide on the Payout
You’ll need to choose between receiving your full jackpot amount through an annuity paid out over 29 years, or taking a one-time lump sum cash payment. The cash value is typically about 50-60% of the advertised jackpot. For a $1 billion jackpot, the cash value would be an estimated $739 million if taken as a lump sum.
There are pros and cons to both options. The annuity offers guaranteed income for decades and protects you from overspending too quickly. However, the payments are smaller, get taxed every year, and don’t grow with inflation over time. The cash lump sum allows you to invest the money and potentially grow your winnings faster, but requires more financial discipline.
Decide Whether to Form a Trust
You may want to consider forming a trust to help manage your lottery winnings. A trust allows you to avoid publicity by claiming your prize anonymously through the trust. It also provides asset protection from lawsuits, creditors and divorce proceedings.
An experienced trust lawyer can help you set up a trust and decide whether to take the annuity or cash payment through the trust. Costs to set up and manage a trust can range from $5,000-$20,000 depending on the complexity.
Protect Your Ticket
Until you claim your prize, make sure to keep your winning ticket somewhere very safe like a safe deposit box or home safe. You may also want to make several photocopies of both sides of the ticket, keeping some in secure locations in case damage occurs to the original.
Never post a picture of your ticket publicly, as this can make it vulnerable to theft. Report your winning ticket as lost or stolen to the Illinois Lottery immediately if it goes missing before you have claimed your jackpot.
Assemble Your Financial Team
Managing huge lottery winnings requires professional help. As soon as possible, you’ll want to assemble a team of experienced financial advisors, accountants and lawyers to help you make the most of your money and avoid large tax bills or bad investments.
Your financial advisor can help you prudently invest and grow your wealth, while accounting guidance can assist with tax planning and preparation. A lawyer can provide legal advice on trusts, estate planning, and wealth protection strategies.
Take your time to carefully choose advisors you can trust, and who have expertise dealing with large sums of money. Thoroughly research any financial or legal professional before sharing details of your lottery winnings.
Evaluate Your Existing Debts
Before making any large purchases or investments with your lottery funds, take stock of any existing debts you may have like loans, mortgage, credit cards or medical bills. It may make sense to pay off high-interest debts first, while strategically keeping useful debts like mortgages.
Paying off debts can drastically improve your credit score, which can allow better terms for future loans. However, completely paying off student loans or mortgages can have negative effects, so consult with financial advisors when deciding what debts to prioritize.
Determine Your Charitable Giving
As a newly crowned millionaire or billionaire, you may be interested in contributing some of your windfall to charitable causes. This can be a rewarding experience and provide tax benefits.
Strategic charitable giving can also help avoid moving into a higher tax bracket as your income substantially increases. You may want to consider private foundations, donor advised funds and trusts as charitable giving vehicles alongside direct donations.
Focus on causes and organizations you are passionate about, and carefully research charities before providing large donations to maximize the impact.
Make a Budget
A sudden influx of millions of dollars can make it tempting to spend lavishly, but overflowing impulse purchases will quickly drain your winnings. To keep your lottery fortune intact, it’s crucial to make and stick to a budget.
Be strategic in allocating funds for things like:
- Investments
- Tax payments
- Charitable donations
- Major purchases like homes or cars
- Living expenses
- Travel or other desired experiences
- Gifts for family and friends (within reason)
Use your team of financial advisors to decide on prudent monthly spending limits. Automate payments for bills, investments, taxes and donations to help control spending. Revisit and adjust your budget annually as needed.
Plan Your Investments
Rather than lavishly spending your entire windfall immediately, you’ll want to invest a large portion of your lottery winnings so they can continue growing. Work closely with your financial advisors to create a customized investment strategy.
A diversified portfolio of stocks, bonds, real estate and other holdings can provide steady growth over decades. Investing in your own business endeavors can also be rewarding if done strategically. Just be sure to do thorough research before making large investments.
Here is a table with some common investment options to consider:
| Investment | Overview | Pros | Cons |
|---|---|---|---|
| Index Funds | Funds matching major stock indexes like the S&P 500. Very diversified. | Low cost, stable growth, easy to manage. | Lower returns than carefully picked stocks. |
| Stocks | Shares in publicly traded companies. | Higher return potential than mutual funds. | Higher risk and require research. |
| Bonds | Loans issued by corporations or governments. | Regular interest payments, low risk. | Lower returns than stocks. |
| Real Estate | Properties like residential, commercial, or land. | Tangible asset, portfolio diversification. | Require management, illiquid. |
Avoid overly speculative investments like penny stocks, crypto, or startup investing until you’ve built a strong foundation with safer options.
Max Out Tax-Advantaged Retirement Accounts
Retirement accounts like 401(k)s and IRAs offer valuable tax savings that can help your nest egg grow faster. Work with your financial advisor to fully fund tax-advantaged retirement plans once you’ve taken care of any existing debts.
For 2023, you can contribute up to $22,500 to a 401(k) and $6,500 to an IRA. Those limits can change annually. If you are over 50 years old, you can also make $7,500 in catch-up contributions to 401(k)s or IRAs.
Select Your Dream Home
One of the great joys of winning the lottery is having the freedom to purchase your perfect home. While buying lavish real estate may be tempting, carefully consider what size and type of property truly fits your needs and lifestyle.
Smaller homes often provide better long-term value, and large properties can be burdensome to maintain. Don’t rush into an expensive purchase until you’ve explored your options thoroughly and considered costs like property taxes, insurance, utilities and maintenance.
If purchasing a very high-end home, you may want to do so using legal entities like trusts or LLCs to maintain more privacy. An experienced real estate lawyer can provide guidance on this.
Buy Appropriate Vehicles
You may want to purchase a luxury car or two with your Mega Millions winnings, but avoid going overboard with dozens of exotic vehicles. Carefully weigh affordability, functionality, and insurance and maintenance costs when selecting vehicles.
Having one flashy sports car and a reliable SUV or minivan for family use is often a balanced option. New vehicles quickly depreciate, so buying gently used 1-3 year old cars can provide substantial savings.
Help Your Loved Ones, But Cautiously
It’s natural to want to share your lottery winnings with close family and friends by providing large gifts, paying debts, or covering their living expenses. However, showering loved ones with too much cash can damage relationships, undermine motivation, and lead to reckless spending and money squabbles.
Have candid conversations with family about realistic financial expectations moving forward. Provide gifts and support according to your own budget and comfort level. Encourage loved ones to pursue education, careers and financial independence rather than relying solely on your lottery fortune.
You may want to consider paying for things like college tuition or medical expenses directly rather than handing out large sums of cash. Sit down with a financial advisor and lawyer to decide prudent strategies for financially assisting family and friends without causing harm.
Create a Will and Estate Plan
To ensure your remaining lottery winnings are handled as desired after your lifetime, it’s essential to create a will and solid estate plan with guidance from your legal team. This includes things like:
- Naming beneficiaries for assets like retirement accounts outside of a will
- Designating an executor to oversee your will and estate
- Choosing guardians for any minor children
- Establishing funeral and burial plans
- Setting up trusts to manage distributions of assets
- Making charitable donations from your estate
- Minimizing estate taxes so more wealth transfers to beneficiaries
Revisit your entire estate plan at least once a year and after major life events like marriages, divorces, or births to keep it current.
Maintain Privacy and Security
Guarding your privacy is crucial when coming into sudden wealth through the lottery. Be very selective in who you share details of your winnings with. Avoid publicity like press conferences that announce your jackpot, and think twice before appearing on TV shows for lottery winners.
You may want to change your phone number, set social media accounts to private, and use legal means like trusts to claim prize money to limit your exposure. Hire security personnel if warranted. Only share personal financial details with trusted members of your advisory team.
Beware of increased solicitations, threats or scams targeted at lottery winners. Carefully research any financial offers, appeals or organizations before responding. Never rush into major money commitments without guidance from your expert team.
Plan for Taxes
Winning the lottery comes with major tax obligations that can quickly eat into your wealth if not properly planned for. Consult with tax specialists and financial advisors to maximize tax advantages and minimize what you owe.
For the lump sum cash option, your prize will be taxed at the highest federal income tax rate of 37% and Illinois’ flat income tax of 4.95%, along with potential local taxes. Paying off your tax liability immediately rather than as you receive annuity payments can potentially save money overall.
Tax planning strategies can help reduce your taxable income each year through tools like charitable donations, retirement contributions, tax-loss harvesting and more. Just be sure to always follow IRS rules and regulations.
Avoid Overly Lavish Lifestyle Creep
Adopting an overly lavish lifestyle with multiple luxury homes, exotic cars, designer clothing, and indulgent travel right after your lottery win can quickly lead to the winnings being spent faster than you anticipated.
Sudden wealth can drive “lifestyle creep” where spending escalates dramatically. Be patient in making major lifestyle upgrades, keep showing prudence, and stick to the budget you’ve created. Financial discipline from the start will let your winnings last.
Focus on Lasting Fulfillment
Rather than seeking short-term happiness through materialism and overspending, focus your lottery fortune on pursuits that provide lifelong fulfillment.
Consider experiences over possessions, like meaningful travel, time with loved ones, or further education. Support causes aligned with your values. Cultivate gratitude. Pursue work, hobbies and relationships that offer purpose beyond your wealth.
Adopting a prudent and intentional approach to your lottery winnings can set you up for true, lasting contentment versus quick but fleeting indulgences.
Get Advisor Help Ongoing
Don’t just depend on your financial and legal teams for initial guidance after winning the lottery. Establish ongoing relationships and regular check-ins to help protect and grow your winnings in the long run.
Your advisors can provide trusted counsel for navigating important financial decisions in the years ahead. Annual reviews of your budget, taxes, investments and estate plan are essential to keep your wealth intact.
This ongoing guidance is invaluable and worth the investment.
Conclusion
Winning Mega Millions can provide amazing opportunities if handled responsibly. Avoid going on an uncontrolled spending spree. Instead, assemble professional advisors, pay off existing debts strategically, plan charitable giving, and develop a prudent budget and investment strategy. With proper money management from the start, your lottery fortune can provide long-lasting financial security and fulfillment.