blind trust lottery

How To Remain Anonymous If You Win The $1.5 Billion Powerball Lottery

If you think the odds of winning this week’s record breaking $1.5 billion Powerball lottery were low (1 in 292 million), try remaining anonymous if you win! The Multi-State Lottery Association, which runs the Powerball Lottery, explicitly states that there are only five states in which you have the legal right to remain anonymous. If you don’t buy the winning ticket in one of those states, are you out of luck? Not necessarily. Here is an excerpt from my new book, The Sudden Wealth Solution: 12 Principles to Transform Sudden Wealth Into Lasting Wealth.

Gallery: 10 Steps To Take When You Win A Lottery Jackpot

If you want to remain anonymous but didn’t purchase the winning ticket in one of those states, it makes the job harder, but there are strategies and legal entities you can create that will help you remain more private if you win the lottery. There are two different strategies. The first is using a “blind” trust.

Remaining Anonymous After Winning the Lottery: Using a Blind Trust

There are a lot of misconceptions and potential problems with blind trusts. Federal officeholders, such as senators or governors, are required to either fully disclose all their financial holdings and any possible conflicts of interest, or place their holdings in a blind trust with a financial institution as the trustee. To prevent the perception that they are voting on legislation from which they could personally benefit, their assets are managed independently and by a third party, without their knowledge or control (i.e., the politician is blind to their investments). But you’re not a politician and you don’t want to give up control of your assets to someone else.

Recently, the term blind trust has grown to include a trust or entity that attempts to hide the true ownership from the public and asset searches. In this case, “blind” refers not to the owner of the trust but to everyone else.

Here you create an entity, a trust or LLC, and name it something other than your name. For example, one of my actor clients titled his trust using an obscure quote from a former president of the United States. Unlike a politician’s blind trust, he has 100% control of the trust, assets, and decisions. This doesn’t completely cloak the account, but it can make tying the trust to my client more difficult in an asset search. For example, Louise White, the winner of a $210 million lottery, named her trust the “Rainbow Sherbert Trust” after the ice cream flavor that led her to the grocery store where she purchased the winning ticket.

Remaining Anonymous After Winning the Lottery: Using a Trust Within a Trust

For high profile lottery winners who want even greater anonymity, a trust within a trust structure is recommended. This is an advanced strategy that should only be taken with competent and experienced legal counsel.

One of my sudden wealth colleagues, Jason Kurland, is a “lottery lawyer” and partner at Certilman, Balin, Adler, & Hyman, LLP. Jason has represented several of the largest Powerball jackpot winners and specializes in protecting the anonymity of lottery winners. Jason is an advocate of the trust within a trust structure because it not only shields winners from requests for money, but also protects them from others.

The trust within a trust requires two trusts:

First Use a Claiming Trust

It’s called the Claiming Trust because this is the entity that claims the prize. As the winner, you assign the ticket to the trust. The trust, which now holds the winning ticket, can claim the prize. The Claiming Trust is a short-term trust that simply claims the prize and then distributes the win to the Bridge Trust. To keep your win as private as possible, the Claiming Trust should have a unique title not at all related or traceable to you. For example, you wouldn’t want the trust to have your name, address, or other identifiable information as the title.

Handing over ownership of a million dollar winning ticket to a trust that is not in your name can seem reckless and scary. Why is this strategy recommended? Rest assured, even though the name of the Claiming Trust won’t have your name, the trust will be directly tied to you. The Claiming Trust, like most trusts, include three types of people: (1) grantor – this is you, the creator of the trust and the individual whose assets are put into the trust, (2) trustee – this is also you, the person who manages the trust and makes decisions regarding investments and distributions and (3) beneficiary – again, also you, the person for whom the trust was created and who receives the benefits of the trust.

The astute reader may be wondering how anonymous the Claiming Trust is when your name is listed as grantor, trustee, and beneficiary throughout the trust document. It’s possible to create an irrevocable trust and name a trusted family member, attorney, or financial advisor as trustee whose only function is to immediately transfer the trust assets into the Bridge Trust for which you will have control. For the winner who wants to remain as private as possible, this is a potential strategy, but for most, I don’t recommend giving up control.

Although most revocable trusts use the Social Security Number of the grantor (i.e., you – the person setting up the trust), you want to avoid this. Why? State lottery commissions are state agencies, and as such, all of their records are subject to the Freedom of Information Act, which makes it easy for a reporter (or anyone else!) to request these documents and trace the Social Security Number back to you. For greater anonymity, depending on the state lottery commission’s rules, you may be able to have a limited liability company (LLC) act as the grantor.

Using this strategy, the winning lottery ticket would be owned by the LLC and the LLC would be the grantor of the Claiming Trust. If a nosy reporter gets a hold of the Claiming Trust, they wouldn’t see your name but would see the name of the LLC instead. However, some states have reporting requirements when forming an LLC that would identify the name of the person who owns the LLC. For example, in California, a Statement of Information for domestic and foreign corporations must be filed within 90 days of forming the LLC, which requires the complete name and addresses of its managers and officers. This is where it is important to work with an attorney well versed in the laws of your state.

Second Use a Bridge Trust

The lottery proceeds are paid into the Claiming Trust and then almost immediately transferred into the Bridge Trust. The reason the lottery proceeds aren’t simply paid to the Bridge Trust is because the Claiming Trust helps to shield the true identity of the winner – it is cloaked to avoid determining the true owner. The Bridge Trust, however, is not designed to protect the identity of the winner. The details of this trust are not subject to Freedom of Information Act requests, so your name can be listed as grantor and trustee, but because the trust name will be listed as beneficiary of the Claiming Trust, which is subject to Freedom of Information Act requests, it’s best not to name the Bridge Trust with personally identifiable information.

It’s called a “bridge” trust because this is the vehicle that holds and manages the assets for you while you determine if there needs to be more complex estate, charitable, and asset protection trusts/entities. But if you do not need more complex planning, the Bridge Trust is perfectly sufficient as your “living trust” and to serve as your main estate planning document, because unlike the Claiming Trust, it will have all of the necessary estate planning provisions.

Connect with me on Twitter @rpagliarini, my financial planning blog, or email me. This discussion is not intended as financial, legal or tax advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Here are several tips on how you can remain anonymous if you just won this week’s $1.5 billion Powerball lottery.

How to Establish a Blind Trust

A blind trust is a type of living trust in which the grantor and beneficiary have no control over or knowledge of the assets in the trust or how they’re being managed. A third-party trustee, who can be an individual or an institution, has full control of the trust assets and does not communicate with the grantor or beneficiary about what is being bought and sold within the trust. A blind trust can be revocable, meaning the grantor can change it later, or irrevocable, meaning it can’t be modified or terminated.

At first, the idea of putting assets into a trust and then relinquishing all knowledge and control of those assets might sound crazy. But in a few situations, this arrangement makes perfect sense. In this article, we’ll discuss why someone might want to establish a blind trust and how to do it.

How a Blind Trust Works

To avoid potential conflicts of interest, a federal official might set up a blind trust to manage private assets that he or she and his/her spouse and dependent children own. Since a perceived or real conflict of interest could arise if that official is involved in legislation that affects his or her investments, placing those assets in a blind trust, especially an irrevocable one, is supposed to allow the official to act impartially and in the best interests of constituents. The official’s supervisory ethics entity must approve the blind trust and the choice of trustee. Federal law doesn’t require federal officials to use blind trusts, but it does regulate how they establish and maintain them.

Key Takeaways

  • A blind trust is a living trust where a trustee controls the assets without the grantor and beneficiary.
  • Blind trusts can be revocable or irrevocable.
  • A blind trust can eliminate any conflicts of interest.

Another situation where a blind trust is useful: when a corporate executive wants to avoid illegal insider trading. The executive can place all the company shares he or she owns into the blind trust, thus giving complete control and knowledge over when and how much of the stock is sold to a trustee. This strategy removes the restrictions on when the stock can be sold since it’s no longer held by an insider, which can result in better investment outcomes. The trustee can manage the assets to improve the executive’s asset diversification and risk profile and does not have to worry about the window periods or blackout periods that affect insiders.

However, while you might read a lot about blind trusts during political campaigns, “not many politicians or wealthy individuals and families use them,” Schaefer says. “Not only do you give up the control and transparency of assets placed in trust, these vehicles can cost tens of thousands of dollars to set up,” he says. They also have high maintenance expenses.

Reasons to Establish a Blind Trust

Basically, a blind trust is supposed to eliminate any real or perceived conflicts of interest.

Blind trusts “are most prevalent within the political community, but can be quite valuable in other situations as well,” says Eric Schaefer, a financial planner and investment advisor with Evermay Wealth Management, an independent financial advisory firm serving high net worth families in the Washington, D.C., area. “Other uses might be to avoid any conflicts of interest. This is a very obvious reason for politicians, but retiring or retired business owners and executives who retain large amounts of company stock may be interested in politics, charitable work or board membership that requires them to act objectively,” he says. “The trust may also come in handy when influential individuals have access to insider information and want to shield themselves from any question of wrongdoing for investment account transactions.”

Another circumstance that inspires people to set up blind trusts: suddenly coming into a large, unexpected sum of money and wanting to keep the matter private. For example, savvy lottery winners in the United States have used blind trusts to prevent investment hucksters and money-grubbing relatives from trying to snag a piece of their sudden wealth.

How to Establish a Blind Trust

Establishing a blind trust basically involves drawing up a document that the grantor signs to give full power of attorney over the trust assets to an independent, third-party trustee (In contrast, with a regular, revocable living trust, the trust settlor can designate himself or herself as the trustee and continue to control the assets.) But it’s not a DIY project; it requires a lawyer’s assistance.

“There are state and federal laws regarding the creation of blind trusts, so it’s important to visit an attorney who has expertise in this area,” says Richard Gotterer, CFP, managing director and senior financial advisor with Wescott Financial Advisory Group, an independent wealth management firm with offices in Philadelphia, Boca Raton, Miami and San Francisco. “During the drafting phase of the trust, you have the ability to provide input such as what the investment objective of the trust will be. For example, should it be invested for growth, income or capital preservation? You have the ability to provide a range for the asset allocation and you have the ability to name the beneficiaries of the trust,” he says.

After that, you cease communication with the trustee and have no further knowledge of how the trust’s assets are being handled.

Choosing the right trustee is imperative. Not only do you need someone who is honest and investment savvy, but if you’re trying to separate yourself from your investments, you also need someone with whom you don’t have a close relationship—not a friend or relative, in other words. In some cases, even a longtime financial adviser or attorney might be considered too close.

In the case of lottery winnings, you could hire an attorney to set up your trust, appoint him or her as trustee and ask the trustee to redeem your winning ticket anonymously on your behalf. Depending on the requirements of the lottery you win, establishing a blind trust might allow you to access your winnings without the media or other busybodies learning who you are.

The Bottom Line

Blind trusts create a layer of separation between the grantor’s assets and professional or political activities that helps to eliminate real or perceived conflicts of interest and accusations of wrongdoing. Individuals who receive a windfall can also use them to maintain financial privacy. But if you’re thinking about establishing a blind trust, you need to carefully consider whether the benefits of independence and removal of oversight outweigh the drawbacks of loss of control and information, especially if the blind trust will be irrevocable.

A blind trust is a type of living trust in which neither the grantor nor the beneficiary have no control over or knowledge of the assets in the trust or how they’re being managed. ]]>