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I noticed everyone is saying get a Lawyer, Financial Planner, and Tax Professional if you hit the big lottery.
Why would I need a Lawyer to collect what I won? Is winning in some way Illegal? I don't understand why I would Opt to give a Lawyer 1/3 of what I won just to collect it.
Can someone explain that?
Also why does the Lottery give IRS 24% of the winnings upfront then ask for more the following Tax year? Isn't that Double taxing me?
Just wondering.
There are a number of reasons for using a lawyer's services before claiming your lottery winnings. Some examples:
Only a half a dozen or so states allow lottery winners to remain anonymous. If you put your winnings into a trust, only the name of the trust becomes public.
Perhaps you'd like to avail yourself of a bypass trust which automatically names the surviving spouse as the beneficiary upon your demise and reduces your family's tax obligations.
Perhaps you were part of a group that won shared in the prize. Since only one entity can claim a lottery prize, establishing an irrevocable trust in the name of the winners will ensure fair distribution.
Perhaps you'd like a blind trust - where the trust claims the prize in its name and invests the funds for you (professional money management).
And no, the lawyer does not get 1/3 of your winnings unless you're foolish enough to agree to sharing. You pay their hourly rate and it's peanuts if you win something like the Powerball lottery.
Why would I need a Lawyer to collect what I won? Is winning in some way Illegal? I don't understand why I would Opt to give a Lawyer 1/3 of what I won just to collect it.
Some states allow for an entity to claim winnings rather than an individual, in such states hiring an attorney to set up a trust can preserve your anonymity. Even if your state doesn't allow that, estate planning is a smart option. Lawyers can have high hourly rates, but it will be a drop in the bucket if you won enough to actually need a lawyer, it won't come close to a third of your winnings.
Also why does the Lottery give IRS 24% of the winnings upfront then ask for more the following Tax year? Isn't that Double taxing me?
They withhold based on the amount won knowing very little about your tax situation, you aren't getting double-taxed on the winnings, you have some withheld initially, and then when you file your tax return all the other variables get factored in and you pay or are refunded the difference between what you already paid and your total tax liability. It's the same as an employer withholding income tax from paychecks, we have a pay as you earn system that means the IRS gets money throughout the year and in the case of a lottery windfall they get it up front.
