Gone With the Windfall
Many lottery winners go through their new riches in no time. Here are five of their most common mistakes — and how they can be avoided with some help from a CPA
by Rosalind Stefanac I
MAGINE THE FREEDOM OF WINNING MILLIONS. It’s a nice fantasy, created by lottery makers via ads portraying care- free, contented winners in exotic locales. And people are buying it — literally. According to the Ontario Lottery and Gaming Corp., almost half of all adults in that province
play the lottery at least once in any given two-month period. Yet if news reports are any indication, the freedom of winning
is oſten short-lived. Take Sharon Tirabassi, the Hamilton lottery winner who made headlines last year for blowing through $10.5 million in only nine years. Today, she is taking the bus to work and living paycheque to paycheque again. In fact, research shows that the bigger the windfall, the greater the likelihood that winners will deplete it quickly. A US research paper compar- ing those with sizable winnings (US$50,000 to US$150,000) with those who won US$10,000 or less showed that the former were more likely to file for bankruptcy aſter three to five years. Sarah, a mother of two who lives in southern Ontario and
requested anonymity, says her experience is a classic case of what not to do with a lottery win. Five years ago, when her then husband won $83,000 in Pro-Line (a game where you predict the winners of upcoming sporting events), it was gone within six months. “Fortunately, I convinced him to pay off the car and a credit card because our finances were a mess, but half of it was spent on stupidity like hosting parties and buying a friend a $400 DVD player,” she says. “My husband already had a high- paying job and we didn’t invest a thing.” Enter the CPA. Helping clients set objectives and get a realistic
view of what to do with their prize money can be just the ticket to longer-lasting windfalls. Here’s a list of some of the most common mistakes lottery winners make and the expert advice that can set them on the right track.
Mistake No. 1: acting too fast With a large amount of unexpected cash in hand, it’s tempting to start doling out giſts and spending with abandon. Cynthia
44 | CPA MAGAZINE | MARCH 2015
Kett, a principal at Stewart & Kett Financial Advisors Inc. in To- ronto, says there is a tendency among many lottery recipients to become overwhelmed and make decisions too quickly. “It’s bet- ter to take a tiny bit to have some fun but then park the rest for at least a few months before you make any big decisions,” says Kett, who has dealt with several big-ticket winners. Steve Woloshyn, an accountant in Kelowna, BC, who won $1
million last year, agrees that there’s something to be said for quiet contemplation. “We put the money aside in a GIC so we had the time to decide what we wanted to do with it,” he says. “There’s a euphoria in buying stuff but you can blow your win- nings in the first few months by buying frivolous stuff.” He sug- gests holding off on any major decisions for a while to let the news sink in.
Mistake No. 2: ditching the job early “People who don’t have any experience in dealing with extensive financial resources think a million dollars is a lot of money,” says Kett. She recalls one client who quit his job at age 30 when he won $4 million in 1998. “While he still doesn’t have to work, he had to sell his cottage and can no longer maintain the life- style of those early years,” she says. “When you win a large sum of money earlier in life, you have to realize you may have another 65 years of living ahead of you and the money might not last.” Kett says there’s also a propensity among winners to think
investments will always keep up with inflation. “But if you’ve stopped working and aren’t generating income, it can be a real problem when your returns don’t keep pace,” she points out.
Mistake No. 3: forgoing any financial advice While people are generally more financially literate these days, only a qualified financial expert will know the intricacies of tax laws, foreign investment and estate planning. The key is for winners to find the best path to grow and maintain their wealth, say experts.
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