The lottery: a practical discussion on advising the lottery winner.

• Author: Griffin, Linda Suzzanne
• Position: Florida

When an individual or group of individuals wins millions of dollars, emotional feelings often override financial considerations.

As lottery winners are becoming more common in Florida,[1] their advisors should understand the particular income, gift, and estate tax issues relevant to lottery winners.

A practical difference between planning for a lottery winner and other planning is that generally lottery winners have not planned for actually winning the lottery. Therefore, when an individual or group of individuals wins millions of dollars, emotional feelings often override financial considerations. This author's experience is that most lottery winners want to drive to Tallahassee the next day (and who can blame them?) to establish their winnings, while they actually have 180 days to claim their winnings.[2] For a more complete discussion of the lottery state law, see Linda S. Griffin and Richard V. Harrison, Florida State Lottery Tax and Estate Planning Issues, 70 FLA. B.J. 74 (Jan. 1996).

This article focuses on advising those clients who retain you prior to their trip to Tallahassee of necessary planning to save as much as possible in income,[3] gift,[4] estate,[5] and generation-skipping[6] taxes.

For purposes of this article assume Mr. and Mrs. Gotrich excitedly call you and state that they just won $30 million. Your heart starts racing as you have visions in your head of enormous fees. Remember, however, The Florida Bar ethics provisions on reasonable fees.[7]

Your clients must understand that the ticket should not be signed until the determination is made as to who or what entity owns the ticket. A ticket signature should not be whited out or defaced, but language can be added to the signature line. If, however, the ticket is lost before it has been signed, the $30 million could be a windfall to the one who finds the ticket.[8] Practically, the lottery ticket should be placed in a safe deposit box until travel to Tallahassee. Some winners have actually hired security to move the ticket.

The ownership of the ticket and the facts relating to the purchase of the ticket should be determined at the time of the initial conference. Be wary if two unrelated parties, i.e., girlfriend and boyfriend, claim the ticket.[9] Florida law requires that only one entity or person can be a winner regardless of whether the ticket is jointly owned.[10] If more than one name appears on the back of the ticket, payment is made to the first person.[11]

Mr. and Mrs. Gotrich explain to you that the lottery ticket has not yet been signed and their whole family (Mr. and Mrs. Gotrich and their five children) participated in the purchase. If all parties actually participate in the purchase of the ticket, planning will be more advantageous because the benefits and corresponding tax liabilities can be distributed among more parties.[12]

Under prior cases[13] the parties' intent and evidence of that intent as to ownership of the ticket must be determined. A recent tax court case, Estate of Winkler v. Commissioner of Internal Revenue, TC Memo 1997-4, illustrates the facts that successfully established a partnership between the parents and their children.

The issue facing the court in Winkler was whether Mrs. Winkler purchased the winning ticket on her own behalf or on behalf of a partnership of family members. If Mrs. Winkler had purchased the ticket in her own name, any benefits to Mrs. Winkler's children would be considered an assignment of income and/ or gifts.

Mr. and Mrs. Winkler had been married for over 50 years and had five children. The facts indicate that the Winklers were a close family and the children lived within a short distance of their parents' home. The children visited their parents every Sunday. Because Mr. Winkler was in poor health, he frequently went to medical clinics in Champagne, Illinois, and Rochester, Minnesota. The clinics were approximately two and eight hours away, respectively.[14]

While the family was traveling to one of the clinics, Mr. and Mrs. Winkler and one or more of their children suggested they purchase tickets for the weekly Lotto. Thereafter, a family routine was established during the trips to and from the clinics that Lotto tickets would be purchased by whoever actually had a dollar bill.[15]

After the tickets...