Background: The young daughter of one of my friends is excited about collecting the Monopoly Cards at the supermarket in the hopes of winning a non-trivial prize. (So far, she has won four doughnuts.) I never used to collect the cards, but now I am collecting them for her. My friend has five children, four of them under 16, and all of them are extremely likely to go to college.
The Question: I know how unlikely it is that this child will win a non-trivial prize, let alone the top prize of $1,000,000 (one million $$), but what if she does?
What are the tax avoidance strategies this family can use to reduce the income tax consequences? Ignore the option of taking the prize over 20 years.
My thought is that all five children should claim to be co-owners so that there will be five awards of 1/5 the prize instead of one winner of the whole prize. I do not know if this is within the Monopoly rules, but if it is, it should reduce the Federal Income Tax significantly. Is there anything else they can do, such as putting money in education funds for all five children? As for state taxes, they live in one of the lower state income tax states, and moving to a zero income tax state is possible, but not very practical.
Please, no comments on the statistical unlikelihood of winning. We know that.
I am asking this possibly frivolous question in the spirit of Be Prepared!