How clients should handle windfalls from winnings

Hitting the jackpot might be a blessing for clients, but it all depends on what they do afterward

How clients should handle windfalls from winnings
For some people, buying lottery tickets is a guilty pleasure that they can’t give up. Although the chances of winning are slim, they still do it hoping to strike it rich — and, once in a while, some do. But what’s the smart thing to do after getting such a windfall?

The Atlantic Lottery Corporation has five pieces of advice for lottery winners, reported the Yarmouth County Vanguard. First, it recommends resisting the initial temptation to burn through the money.

“[I]t’s good to spend the first few days taking some time to absorb the news,” the corporation said. And according to Dr. Emmanuel Haven, finance professor and the Dr. Alex Faseruk Chair in Financial Management at Memorial University, winners should also watch out for old friends and strangers who’ll want to get a piece of the winnings.

Second, the corporation recommends that winners shop around for financial advice. Whether it’s from a bank manager, an accountant, or an investment planner, the corporation said, professional advice should be based on goals for the future. And according to Prince Edward Island-based financial advisor Blair Corkum, winners should approach at least three professionals for recommendations.

Third, while Canadian lottery winners are not required to pay taxes on their winnings, any earnings derived from those winnings are taxable. The lottery corporation recommended consulting a tax specialist or Revenue Canada.

Fourth, jackpot winners will also want to weigh any decision to give to charity. In such circumstances, charitable organizations also reach out hoping for sizable donations, but it’s best to have a strategy before extending help.

Finally, winnings can be used to take care of high-interest debt. Paying off credit cards is always a good idea, but Corkum cautions against wiping out mortgage or car loans immediately; lending institutions may charge early-payment penalties, so winners should make sure before they take that step.

Aside from following the lottery corporation’s suggestions, Haven said those who have no investment experience should quickly get educated about the risks and benefits of different vehicles. “You have to read up on what you want to do with that money so that when you approach that guy at a good, solid Canadian bank, you can at least talk about it,” he said.

Related stories:
Advising a $1.5 billion lottery winner
Are advisors letting down lottery winners?