Tonight: January 13, 2016 - The Powerball is up to a whopping $1.3 billion!
Of course you dream of what you would buy if you were the winner, but did you ever think of the legal challenges you could possibly face after you’ve won?
Giving Money to Family and Friends
This year, the annual gift tax exclusion is $14,000. This means that a lottery winner may gift up to $14,000 to friends, family, or charities tax free. Also, the gift(s) do not have to be reported on a gift tax return.
Sharing the Winnings with a Spouse
It is important to keep in mind that because Texas is a community property state, anything that was purchased with marital funds or acquired during the marriage is considered marital property. This includes lottery winnings. If a lottery winner later gets a divorce, the winnings could be divided between spouses.
A Lottery Pool
Lottery tickets are sometimes purchased by a group of individuals. If a pool of people purchase a lottery ticket, it’s important to have a document stating how the group agrees to distribute the winnings.
Because lottery winnings are classified as taxable income, winners should consider ways to limit those taxes. A trust, for example, is a good estate planning vehicle that may be used to hold funds and minimize the taxes a winner’s estate may have upon death.
If you do find yourself the winner tonight, we recommend you meet with an attorney before claiming the winning ticket to discuss all the potential legal problems that may arise.