I understand all of the hoopla about the billion dollar power ball lottery, the effect of taxes on winnings, etc. but I have a simple question regarding any sizeable lottery winnings. Let’s say you win $10M and want the time to consult with various financial advisors before spending any of your winnings. So, you deposit the $10M in one or two banks that have FDIC insurance. But, “Bank A” suddenly goes under and is taken over by the FDIC. Your account is only insured to the FDIC limit – $250,000. Do you lose the remainder of your funds, say, $4,750,000?
Terry Says: Well, this comes under the title of “counting your chickens before they hatch” — so maybe I should file it under the “Chicken Money” category! But let me take this seriously for a moment, because surely someone is going to win this time! (Even I bought a ticket and I typically don’t do longshots!).
The first thing a winner would do is consult an attorney to set up some kind of partnership, or maybe even a foundation, to be named as winner, and to deal with the lottery winnings. An older person, for sure, would want to do this, so at his/her death the money won’t be subject to estate taxes, on top of the income taxes that have to be paid on the winnings. IF YOU’RE THE WINNER, CONSULT THE ATTORNEY AND AN ACCOUNTANT BEFORE CLAIMING THE PRIZE!
I can assure you the winner won’t be putting the money in a bank — or multiple banks to stay under the insured limit. He/She will likely immediately invest the cash in short term Treasury Bills — direct IOUs from the United States government. That will keep the money safe and liquid. Then swarms of investment professionals will come up with ideas for investing the money. Dream on!