Each of us daydreams of an easy way to become rich. Maybe we will come into some unexpected money. We dream of winning the lottery, hitting a slot machine jackpot, or winning a game show. We wonder if there may be some lost relative ready to leave us their fortune.
So, let’s say you do come into significant wealth. What do you do? Of course, you probably have some ideas on ways to spend the money. But, first you have to take care of business. If you acquired it from a game show, a lottery, or a casino, or if you just found it on the street, it would be subject to income taxation. On the other hand, if your lost relative surprised you with a huge check, it would not be subject to income taxation, though estate or other transfer taxes may have to be deducted. An estate planning attorney can help you determine the taxes which are owing.
Richard Hatch, the winner of the first Survivor television series failed to report the $1 million he won on that show. The government charged him with tax evasion and he agreed to plead guilty to two counts in return for a recommendation for a more lenient sentence. Even so, he faces up to 10 years in prison for his failure to report his winnings.
After you have paid the appropriate taxes, you will need to decide how to handle the remaining assets. First, a financial planner can help you decide how to invest your assets given your age, income requirements, and goals. The investment portfolio appropriate for someone who is age 30 may not be the same as a portfolio appropriate for someone age 65.
Next, you need to plan what should happen with your assets in the event of your death or incapacity. An estate planning attorney can help you plan for these possibilities. Powers of attorney for property and health care can help protect you from legal problems during incapacity. A revocable living trust also helps manage assets during your incapacity, as well as streamlining the disposition of assets after your death. This trust can be very flexible, providing for your children while keeping them from squandering their inheritance.
Depending upon the size of your windfall, more advanced planning may be appropriate, as well, including irrevocable trusts, charitable trusts, family limited partnerships, etc. Regardless of the size of your windfall, your first step is to contact an estate planning attorney to assess your current tax liability and to make sure you have planned for your future. Do not make the same mistake that Richard Hatch made. Contact us today for free one-hour personal consultation.
Compliments of the McGee Law Firm, Attorney Brandon McGee
Written By: The American Academy of Estate Planning Attorneys