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Establishing a Trust or Partnership for Lottery Ticket Purchases

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What does it indicate?

A group of individuals who wish to increase their chances of winning a lottery may decide to pool their resources to purchase lottery tickets. If a winning ticket is purchased, the prize will be divided among all group members. A contract to manage the group purchase of lottery tickets may constitute a partnership. Additionally, the group may establish a lottery trust to ensure the equitable distribution of lottery winnings. Any lottery winnings are transferred to the trust to benefit the individuals named in the trust deed (in this case, the people who bought the tickets). The lottery winnings are then distributed according to the terms of the trust.

Why Should a Trust or Partnership Be Established to Purchase Lottery Tickets?

Before purchasing lottery tickets, establishing a trust or partnership has numerous advantages. If, for example, you agree with family members to pool funds to purchase lottery tickets and share any winnings. If the group buys a winning ticket, the tax burden will be shared among multiple individuals. Your tax bracket may be lower than it would have been had you won the entire jackpot. Using the gift tax applicable exclusion amount, each recipient may be exempt up to $1 million of gifts from federal gift tax if the prize is substantial, such as millions of dollars, and if it can be divided among multiple individuals. In addition, before distributing your winnings, your state lottery commission will likely deduct federal and state income taxes. However, the amount withdrawn may not cover your total debt. Consequently, the tax burden may be less onerous if the winnings are split between multiple individuals.

In addition, after winning a large lottery prize, the likelihood of being sued increases significantly. To obtain a large court settlement, someone may "slip" on your sidewalk, stage an automobile accident, or start a fistfight with you. Legal victories will consume a smaller portion of the total amount if the lottery winnings are divided among multiple individuals.

How is a partnership or trust established?

Having an attorney draft a trust or partnership agreement is the most efficient method for establishing one. Your attorney will be familiar with the laws of your state and the arrangements that meet your needs most effectively. A contract that you have drafted yourself may also provide you with protection. Include the names of the lottery players, the length of time the group intends to play the lottery, and the distribution of winnings in your agreement. All parties should sign the agreement.

Whoever buys the lottery tickets should be in charge of making photocopies for the group. This will ensure everyone knows the group's lottery numbers before the drawing. This group agreement may be regarded as a partnership and taxed as such.

Alice, Barry, Cathy, Donald, Edward, Francine, Garrett, Hugh, and Irene form a lottery-betting alliance. They agree to participate in the weekly lottery of their state for one year. In addition, they decide to keep track of how much each member wagers per week and to make copies of each member's tickets before the lottery drawing.

Example(s): For instance, if a member contributed 10% of the money wagered in a given week, he would receive 10% of the winnings. If another player wagered 2% of the total pool money that week, she would receive 2% of the winnings for the week.

What Is the Outcome of Winning the Lottery?

If you have created a trust or partnership that owns a winning lottery ticket, the proceeds will be distributed according to the terms of the governing document. In most instances, the amount received by each person is proportional to the amount contributed. For example, if one person contributes 25% of the total amount spent on lottery tickets, that person is entitled to 25% of the jackpot.

George, his three grown children, and a cousin form a lottery pool. George makes a ten-dollar contribution to the pot. Each adult child contributes $20, while the cousin gives $30. They have agreed to divide any winnings in proportion to their contributions. The group purchases $100 worth of lottery tickets. One of the tickets purchased by the group is a winner! Its value after taxes is $2 million. Because his $10 contribution represented 10% of the $100 spent on tickets, George receives $200,000, or 10% of the $2,000,000 jackpot. Because $20 is 20% of $100, each of the three grown children will receive $400,000, or 20% of $2 million. The cousin gets $600,000, or thirty percent of $2 million, since thirty percent of $100 is thirty dollars.

Lottery Groups

One option is purchasing lottery tickets through a lottery club. Frequently, lottery clubs are comprised of individuals from all over the country who agree to abide by club bylaws that stipulate how much each member must contribute and how lottery winnings will be distributed. Although some lottery club members may know one another, most club members are recruited nationwide through newspaper, magazine, and Internet advertisements.

Another type of club allows you to play specific lotteries by purchasing pre-paid long-distance telephone calling cards (Powerball, the Big Game, the Florida lottery, and the California lottery). To enter their preferred lottery, cardholders dial a toll-free number.

Each participant is added to a lottery club, for which 100 tickets are purchased. If any 100 club members' lottery tickets win the jackpot, they will each receive an equal share of the prize. The purchase of these cards facilitates participation in lotteries held in remote locations, and the company issuing the cards handles the required legal work to establish the partnership.

Unless you frequently make long-distance phone calls, joining these clubs may not be worthwhile.

 Some of the following material has been prepared by Broadridge Investor Communication Solutions, Inc.. The material is considered reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing is accurate or complete. This information is not a full summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. The investments mentioned may not be suitable for all investors. The material is general. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal, or mortgage issues. These matters should be discussed with the appropriate professional.

John M. Lynch, CIMA®, CPWA® Managing Director – LRIG, Financial Advisor– RJFS,
of Lynch Retirement Investment Group, LLC. was named on the 2021 Forbes Best-In-State Wealth Advisor List.

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2016, 2017, 2018, and 2019
forbes 2021John M. Lynch, CIMA®, CPWA®

                        

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John M. Lynch, CIMA®, CPWA®
Managing Director – LRIG,
Financial Advisor – RJFS

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Andrew Fentress, CFP®
Financial Advisor

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Adam Tobin, CFP®, CRPC
Customer Relationship Manager

 

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Barron's "Top 1,200 Financial Advisors," March 2022. Barron's is a registered trademark of Dow Jones & Company, L.P. All rights reserved. The rankings are based on data provided by 6,186 individual advisors and their firms and include qualitative and quantitative criteria. Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice, and philanthropic work. Investment performance is not an explicit component because not all advisors have audited results and because performance figures often are influenced more by a client's risk tolerance than by an advisor's investment picking abilities. The ranking may not be representative of any one client's experience, is not an endorsement, and is not indicative of the advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. Barron's is not affiliated with Raymond James. The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years of experience, and the algorithm weights factors like revenue trends, assets under management, compliance records, industry experience, and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criterion due to varying client objectives and a lack of audited data. Out of approximately 32,725 nominations, more than 5,000 advisors received the award. This ranking is not indicative of an advisor's future performance, is not an endorsement, and may not be representative of (individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. Please visit https://www.forbes.com/best-in-state-wealth-advisors for more info.

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