So you just won the lottery: Advice from a family office

Let’s be honest: We’ve all dreamt about winning the lottery, quitting our jobs, travelling the world and never worrying about money again. Ah … bliss.

I don’t mean to burst your bubble, but after helping multiple lottery winners navigate their new reality, I can tell you that sudden wealth often looks quite different than what we expect. This can apply whether you’ve inherited a tidy sum from a long-lost relative or signed a contract to play for the NBA.

While the financial benefits are clear, there are challenges that typically aren’t talked about (as it’s hard to complain when you’re newly wealthy). Some of these challenges include strained personal relationships, anxiety about managing the new-found wealth, finding advisors you can trust, and, of course, dealing with publicity.

But these are challenges that the team at Northwood Family Office has experience handling. And drawing on our experience, we’ve outlined a comprehensive plan to consider should you hit it big.

Breathe, then do (almost) nothing

The first six months following a lottery win are critical, as it is the period where the most long-term damage can be done. Impulse purchases, lifestyle changes (like quitting your job), and gifts to family and friends can start you down a path that may be difficult to recover from. My advice for this period is simple:

• Put the ticket somewhere safe (i.e. fire-proof safe or safety deposit box).
• Keep the news private and only tell people who absolutely must know.
• Don’t make any significant lifestyle changes (i.e., career changes, significant purchases, promises of gifts, commitments to investments).

The above steps allow for a “cooling off” period where you can start to adjust to your new circumstance. An exception to the rules above would be paying off any consumer debts or taking a family holiday, but it is important that no significant funds be spent during this time frame.

This cool-down period is essential to allow you to gain a degree of comfort with your new wealth, deal with the emotions, and surround yourself with the right team to help manage the wealth successfully.

Build your team

Without an influx of sudden wealth, most individuals can manage their financial affairs on their own. However, a lottery win likely represents a significant change in one’s financial position, necessitating the engagement of professional advisors. These advisors can help you understand the impact of the wealth and how it can be structured to best suit your needs. You may have current advisors that could still be a good fit, but it’s crucial to consider whether they have experience working with individuals of significant wealth, as it’s a completely different ballgame.

At a minimum, here are the key advisors who should be consulted:

• A financial planner: A financial planner can help you understand what the wealth means in terms of allowing you to live the lifestyle you want. Ideally, they will help you understand the impact that large purchases, spending levels and investment returns will have on your ability to live the life you want in relation to your new wealth.
• An accountant: An accountant will identify if there are any tax implications associated with the winnings and will structure your affairs to minimize the family tax burden as the wealth is utilized.
• An estate lawyer: An estate lawyer will update your wills to reflect your new circumstances and ensure your wishes are represented should you pass away. This is especially important if there are dependent children that need to be protected from receiving significant wealth at too early an age.
• Investment advisor: An investment advisor will develop an investment strategy and construct a portfolio that will provide you the greatest opportunity of achieving the rate of return required to meet your financial goals and objectives.

This list is not all-encompassing, as the circumstances of families differ. It is quite possible that additional advisors in the areas of insurance, philanthropy and even family coaching might be beneficial to a family’s unique situation. And depending on the magnitude of the win, hiring a family office to take the lead and oversee the management of the wealth toward your goals might be appropriate.

My advice for finding the right advisors is to take your time and do your homework. Ask for referrals from people you trust, check references and interview multiple advisors before making your decision. The goal is to partner with an advisor and firm that will work with you for the duration of your lifetime and, in many cases, your children’s lifetimes as well.

Build your plan

The word “millionaire” still stirs up perceptions of success and achievement for many people, however in today’s world, a million dollars doesn’t go as far as it once did. And unfortunately, this is something many lottery winners come to realize too late. What seemed like a significant windfall becomes less significant once the mortgage is paid off, lifestyles are upgraded, and family and friends come asking for help.

As a new lottery winner, how do you know if you now have enough? The answer will be different for everyone, but the first step is to define what you want to accomplish with your wealth in terms of goals and objectives.

Here are a few questions to ask yourself:

• What do you want your life to look like post-lottery win?
• How much will you need to spend per year to pay for this lifestyle?
• Are you planning any significant purchases?
• Are you planning to support family, friends or charitable causes?
• Would you like to leave a specific amount to your children, grandchildren or beyond?
• Can you afford to fund all the goals you identified, and if not, how would you prioritize them?

Once you define your financial goals and objectives, you can think of them as liabilities to be prioritized and funded. For example, if you are 50 years old and your goal is to spend $200,000 per year until age 95, you would require approximately $6,000,000 of your lottery winnings to fund this goal (assuming inflation at 2 per cent, gross investment returns of 5 per cent annually, and current tax rates).

By quantifying the “cost” of your financial goals, you’ll be in a much better place to make decisions about the future. And while this exercise might seem daunting, there are many competent professionals who can do this work for you.

Prepare for the whirlwind

Winning the lottery is unique in that it’s extremely public, as most major lotto organizations require winners to disclose personal information and take a photo with a cheque. This is great publicity for the lotto organization but creates a whole host of issues for the winner.

Once the news is public, lottery winners are often inundated with calls from professional advisors, friends and family, charities, and fraudsters. It can be overwhelming, and unfortunately challenging to identify whether someone has your best interests at heart or sees an opportunity to share in your good fortune.

To manage the whirlwind, it’s important that the steps noted above are completed prior to the win becoming public, as you’ll be in a much better position to manage any inbound requests. It’s also crucial to set boundaries. Decide in advance how you will handle requests for money, and if helpful, lean on your professional advisors to be the “bad guy” in sensitive situations.

For example, at Northwood we encourage our clients to direct any investment opportunities from friends and family to us. We’ll review the opportunity objectively, and are comfortable saying “no” if we don’t think it is appropriate for our client’s portfolio. Clients appreciate this approach, as they are removed from the decision, which minimizes potential strain on the relationship.

Never lose your ‘north’

Managing a lottery win, or wealth in general, toward your defined goals and objectives is no small task. It is a hands-on job that requires ongoing maintenance to adapt to the economic, regulatory and relationship changes that will inevitably occur over a lifetime.

Some families choose to hire a family office to ensure their financial plan remains current, while others may opt to manage things themselves. In either instance, it’s important that all aspects of your financial plan are reviewed regularly to ensure it remains aligned with your goals and objectives (your “north”).

Final thoughts

Winning the lottery is a life-changing event filled with excitement and opportunity, but it also comes with its own unique challenges. By following the points above, you can manage your new-found wealth wisely and ensure it benefits you and your loved ones for years to come. The key is to take your time, stay focused on your long-term goals, and build a strong team of trusted advisors who have expertise and experience in helping lottery winners navigate this unique journey.

Andrew Jeffery is a Vice President in the Family Office Advisory Group at Northwood Family Office in Toronto and sits on the firm’s management committee. He specializes in helping multi-generational families in the areas of financial planning, investment management, tax and estate planning, and family governance.

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