How to Split Lottery Winnings Without Losing Friends or Family

Getting in on the lottery can be great fun, especially if you find yourself the lucky winner of a substantial amount of money. While you’ve been daydreaming about what you would do with that money, have you considered how to split lottery winnings with family or co-workers?

You do want to share, right? Okay, okay, so the answer is maybe, but maybe not. Some critical considerations exist when splitting lottery winnings with family, friends or co-workers.

But, first things first...

Can you split lottery winnings with family?

Yes! You can share money with your family after a big lottery win. But there are some essential points to consider:

• Decide whether you want to share: This is a personal decision only you can make, and there’s nothing wrong with keeping your winnings. But if you want to spread the wealth, that’s good too.

• Get advice: Get the advice of a professional, such as an estate lawyer or a financial planner, before you start handing out the cash. They can help you understand tax implications, legal issues and other factors related to your gifts.

• Know your taxes: Those same professionals (along with a certified public accountant) can help you understand what taxes you will pay so you can set aside enough money for tax time and don’t have to deal with a surprise tax bill.

• Decide how to share: Will everyone get an equal share? Will those with more financial need get a bigger chunk of the pie? Or will you use some other factor to decide who gets how much? However you break it down, clearly communicate your reasoning.

• Write it down: When you make your decision about who gets what, put it in writing. (Yes, you may need to get a lawyer involved.) This will help avoid potential problems later.

• Think about trusts or annuities: If you don’t want family members to squander the money immediately, consider placing it in a trust or annuity for each member. This will release the cash at a predictable rate and ensure the money lasts.

• Be a great communicator: Be open and honest with the people you gift money to about how much and why. Be able to explain your reasoning to avoid misunderstandings and resentments in the future.

How much is my lottery payout?

A number of factors will determine how much money you will receive after winning the lottery, which could impact your decision to split your winnings:

• Payout options

• Tax implications

• Federal and state taxes

Understanding payout options

When you win a top prize with the lottery, you may have two choices for payout: a lump sum or an annuity option.

It is important to consult with a professional who can help you decide which option is best for your unique situation. They can also help you decide how to store your winnings, whether that’s in multiple bank accounts, investments and other ways.

Be tax savvy!

So, it’s time to talk about the elephant in the room: taxes. You don’t want to do all this work around how to split lottery winnings with family only to have everyone pay more in taxes. You can’t gift money to others to try to avoid paying taxes on the winnings. In fact, if you gift enough, there might be even more taxes to pay! This is called the gift tax.

You can gift up to $18,000 per person per year without facing the gift tax. If you are married, you and your spouse can gift up to $18,000 each to the same person, for a total of $36,000 per person per year. In addition to the annual gift tax limit, there is a lifetime limit of $13.61 million per person in gift funds.*

There are other rules around gift taxes, and we suggest you talk with your tax advisor.

Understanding federal and state taxes

When considering how to split lottery winnings with your family, it’s important to understand the amount you’ll have available to distribute. When you win, a chunk of your winnings goes to the IRS immediately. They will take 24% of your prize right off the top. You will need to claim your winnings on your tax return for that year. The prize is considered taxable income and will be taxed accordingly. Be ready, as the prize money will likely push you into a higher tax bracket.

Depending on the state you live in, you will be subject to state taxes in addition to your federal taxes. If you live in one of these states, consider yourself lucky. You won’t owe state taxes on lottery wins on top of federal income tax:

• California

• Florida

• New Hampshire

• South Dakota

• Tennessee

• Texas

• Washington

• Wyoming

For all other states, see your state website for additional information regarding how much to expect for state taxes, or consult with a local tax attorney or certified public accountant who can help you be ready to pay your required taxes, and here youcan get the latest lottery results.

Lottery pools: splitting lottery winnings with co-workers

Did your work lottery pool just win the grand prize? Woo-hooo! Did you set up rules beforehand regarding who claims the money and how it’s distributed? No? Well, let's find out how to split lottery winnings with co-workers.

You want to prevent a dispute in case your group wins. So, have a designated leader responsible for collecting the money (electronic funds are better than cash because there’s a record!) and copying and distributing images of the tickets.

This leader should also be the holder of the contract you should have drawn up in advance, indicating what happens when you win. The contract will also spell out which games they will order tickets for and who will be the representative at the lottery commission to claim the prize. You will also need to decide as a group whether to take the lump sum or annuity option if you win. Everyone involved in the contract should sign it.

This article originally appeared on Jackpocket.com and was syndicated by MediaFeed.org.

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