LOTTERY WINNINGS, MEDICAID/MEDICARE AND
ESTATE PLANNING Many Americans Will See Financial Windfalls in their Lifetimes; It’s How they Handle Them that Determine How Well those Windfalls Work for them in the Long Run
SAUL KOBRICK
NEW YORK ESTATE PLANNING ATTORNEY SERVING NASSAU, SUFFOLK, AND WESTCHESTER COUNTIES
There are two people – families, really – who are celebrating today. Another record breaking lottery has just changed their lives – one in Georgia and one in California. Odds are, words like “estate planning” and “power of attorney” and “trusts” aren’t even in their stratosphere yet. They will be, though, and ideally, they have attorneys who will strongly encourage them to take a step back out of the spotlight long enough to put those very important legal documents into place. Many Americans will see financial windfalls in their lifetimes; it’s how they handle them that determine how well those windfalls work for them in the long run. While many will have a sudden and unexpected influx of cash, the reality is that the odds of winning the Powerball is 1 in 175 million. According to the Multi State Lottery Association, when the jackpot hits $40 million, you can expect up to 15 million Americans heading off to buy lottery tickets. Their goal? It’s simple: they want to defy the odds.
MEDICAID, MEDICARE AND THE LOTTERY But what happens if you’re on Medicaid and you’ve won the lottery? There is a good chance you may be required to repay everything Medicaid and/or Medicare has spent. It is absolutely crucial to speak with your estate planning attorney and possibly a tax specialist. Medicaid is a means tested program; your means such as assets and income play a role in the determination of eligibility. If you suddenly have millions in assets, these programs aren’t going to cover those
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expenses that you can now afford to cover yourself. Social Security is another story and again, it varies – even slightly – from one state to the next, so you’ll want to speak with your Social Security lawyer to ensure you’re in compliance with all federal and state laws.
TRUSTS There are a number of trusts that can be put into place to protect their winnings or other windfalls and while they vary in their specific purposes, the common denominator is always to protect those assets and the family as a whole. A revocable living trust offers benefits; however, it does not protect you from creditors since you can revoke it at any time. An irrevocable living trust is protected from creditors, but you must all relinquish ownership. You and your lawyer can work out the best methods for establishing trusts for your family.
DURABLE POWER OF ATTORNEY This is an especially important legal document that puts into place those people you trust to make decisions on your behalf. Typically, there is a financial power of attorney and a medical power of attorney. Especially after coming into a large sum of cash, it’s important to update your documents or put them into place. You’ve been divorced for a few months and because you’ve been so emotionally drained, you’ve yet to make changes to your will and insurance policies. You and
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your former spouse have two young children together and while the divorce was difficult, the two of you managed to keep an even keel and a united front for the benefit of your children. You got a phone call last night letting you know that the office pool just hit the lottery. Any idea how that looks on paper in terms of all of the legal documents you’ve just signed? Your estate planning lawyer can provide invaluable advice moving forward – and it’s advice you’re going to need. Does it change your powers of attorney in place? What about guardianship issues when it comes to your children? What if you become incapacitated? More importantly: what should you do first? Make an appearance on your morning news show your coworkers or call your attorney? (Definitely speak with your attorney before you do anything.) That is probably the one thing you don’t want to do. If, however, you’re part of a group, such as your coworkers, you may not have complete control over that, but you can protect yourself to some degree.
HEALTH CONSIDERATIONS There are a host of new laws surrounding healthcare and privacy issues. Odds are, you’ve likely already updated documents such as HIPAA, any Do Not Resuscitate (DNR) orders and named a healthcare power of attorney. If it’s been a while since you’ve reviewed them, it should be a big priority. Again, it goes back to protecting your family, even as you’re living with your newfound wealth.
THE TAX MAN
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There are going to be tax issues, too. The first hurdle (after speaking with your attorney) will be how the co-winners want to see it through and how that might affect your finances. States with lotteries withhold federal taxes, but there could be further tax considerations later on. Those could affect any trusts you have in place and future plans for how you wish to see the money spent. Also, anything you give away less than $5.25 million isn’t subject to federal taxes, but not so much with the next 5 million – you could be looking at a massive 45% tax on that, so keep it in mind. Winning the lottery or other large sum of money is life changing and ideally, it changes lives in a positive way; however, as we’ve seen time and again, it’s not always the case. Keeping a level head and maintaining a sensible approach to various legal and financial responsibilities will better ensure your efforts of protecting you and your family. And one final bit of advice for those early days: remain anonymous! This is one of those life events that hit out of nowhere and while it seems like it’s heaven sent (and if you handle it the right way, it can be), it’s also a shock – one that’s overwhelming. You need time to live with it, let the shock settle and seek out legal guidance moving forward.
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About the Author Saul Kobrick Saul Kobrick is an attorney licensed to practice law in the State of New York and the owner and founder of The Law Offices of Saul Kobrick, P.C. Mr. Kobrick is licensed to practice law in all courts of New York State, as well as in the Federal District Courts for the Southern and Eastern Districts of New York. He is a member of the New York State Bar Association as well as a member of the American Academy Estate Planning Attorneys. Mr. Kobrick is also a member of the National Academy of Elder Law Attorneys. Experience Prior to founding his Garden City Law Firm in 1992, Mr. Kobrick has for many years, practiced law both as a Sole Practitioner, and in partnership in New York City. His work has always included business law, wills, trusts and estate planning. A Suffolk County Branch of the firm was added in January of 1998, and a Westchester County Branch of the firm was added in August of 1999 providing quality Estate Planning and Elder Law services to residents of Nassau, Westchester and Suffolk Counties.
Law Offices of Saul Kobrick, PC www.kobricklaw.com (800) 295- 1917 GARDEN CITY 1305 Franklin Avenue Suite 170 Garden City, NY 11530 Phone: (516) 248-9500 Fax: (516) 248-7606 HAUPPAUGE 235 Brooksite Drive Hauppauge, NY 11788 Phone: (631) 941-3400 Fax: (516) 248-7606 HARRISON 600 Mamaroneck Avenue 4th Floor Harrison, NY 10528 Phone: (914) 701-0777 Fax: (516) 248-7606
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