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Money Times - Januray 31, 2017

Posted by Jill Kerby on January 31 2017 @ 09:00

 

BIG LOTTERY WINS COME WITH MORE THAN JUST LOADS OF MONEY

As I write this column – a few days before it appears in your newspaper – rumours are swirling that a consortium of 30 shift workers at a pharmaceutical firm in Cork have won the EuroMillions windfall jackpot of €88,587,275.

Good for them. That works out at a tax-free prize of €2,952,909 each, more than enough money to pay off their bills, to buy a new car and house, and put all their kids through graduate school and probably buy a house for each of them too.

They’ll probably have enough left over to fill up a retirement fund and maybe even quit the day job and follow a few dreams.

A €2.9 million windfall is enough to change your life for the better but is less likely to result in the downside risks that come if just one person had scooped the c€88.6 million, a massive sum to have to navigate, probably for the rest of your life. That is, of course, if you don’t blow it recklessly or give most of it away, perhaps keeping a modest million or two for your own enjoyment.

I’ve only met one lottery winner, about 20 years ago and the sum he won was about £3 million.  By the time I spoke to him, he had about a million left having bought the inevitable new home, car, holidays and had generously given the rest away to his extended family, some friends and charities.  He was now concerned about the implications of his children possibly receiving very large inheritances while still at relatively young ages.

I passed him the names of some good financial and legal advisers, but I remember him saying that the process of giving away a large share of a million and a half pounds to his loved ones hadn’t turned out to be as happy an experience as he thought it would.

This is a common outcome for many lottery winners who nearly always say that you really find out who your friends are when you win millions.

Winning a huge windfall like c€88.6 million means you will certainly need a highly trusted team of financial, tax and legal advisers who might end up on the payroll for a long time. Even working out what do with €3 million, especially if you want to preserve much of the capital (after buying that new house, car, etc) will take time and probably more understanding of money and tax than you have. Too many are tempted to hand over the management to “the professionals”.

Whether it’s a huge jackpot or a diluted one, responsibly investing and divesting yourself of that kind of money requires a measure of faith and trust in the advisers you employ.

But it’s your responsibility in the end. Their respective roles are to help you work out a financial, tax and legal plan of action that reflects what you want to do with the money.

The financial planner should be experienced, trained and fee-based. (They shouldn’t necessarily charge a percentage fee of the winnings. 1% of €88.6 million is an annual payment of €886,000!)  Should the process of selecting a diverse, balanced, mixed portfolio of assets with capital protection and a modest risk/reward income return cost 1,000 times more than it would for a comparative pension fund?

The tax adviser will work with the Financial Planner to explain all the tax implications of your great windfall: there is no capital gains tax on lottery winnings here but all deposit returns (such as they are) is subject to 39% DIRT. Irish investment gains will carry up to a 41% tax bill. Investments in other jurisdictions will carry their own liabilities, including any inheritances that may be generated from the foreign investment. 

Gifts and inheritances in Ireland carry relatively small, life-time tax free thresholds:  just €310k between parents and child; €32,500 between siblings, to nieces/nephews and just €16,250 to non-relatives. Winners who want to set up family trusts for the benefit of future generations – and doing that badly could be catastrophic for your children if it’s not thought through with great care - will need tax and legal advice.

The solicitor you hire will also play an important role in setting up those trusts, completing property deals, preparing complicated wills, (perhaps in more than one country), even pre-nuptial agreements (where possible) and Enduring Powers of Attorney. Your lawyer will come in handy if disputes arise, especially if €88.6 million is at stake.

I’ve heard lots of suggestions about how the big winner (or maybe, the smaller ones) should proceed. “Take your time” and “protect the capital in the short term” sounds about right.

Finally, forget the notion that winning millions (or tens of millions) won’t change your life. It will. But the last thing you want is that your good luck turns into someone else’s misfortune.

 

(The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)

 

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