Lottery winners are facing increased safety concerns when they win the lottery jackpot.  Winners are often targeted by all sorts of individuals who simply want some of the proceeds.  For safety’s sake, steps should be taken by the state to protect the winners from the release of their names to the public.  So far, the legislature has failed to allow winners to remain private.  Two ideas were floated in the 2015 Texas legislative session that addressed this.  One idea was to tax winners 5% of their jackpot to remain anonymous.  On a minimum Texas Lotto jackpot of $4.0 million, 5% = $200,000.   Luckily for lottery winners, that idea didn’t go anywhere.  Unfortunately, neither did the bill that would have allowed winners to remain anonymous for free.

 

So, is it possible to remain anonymous if you win the lottery jackpot? 

 

Here are some of the rules regarding the information that must be revealed and information that might be revealed by the Lottery Commission.

 

Since the Texas Lottery Commission is part of state government, the Commission falls under the rules of the government code, including the Public Access to Information rules, referred to as “open records.”   Under these regulations, the public can request information from an agency about information they have on hand.  A request can be made by anyone, but is typically used by reporters who want documents for a story.   Unless there is an exception, the government agency must supply the requested documents.   Although not particularly listed as an exception, the Texas Attorney General has ruled that social security numbers in government documents are confidential.  So a jackpot winner’s SSN would not be released.

 

Currently, the Lottery Commission is required to release the names of lottery winners.  The Commission will also release the address and phone numbers of a lottery winners unless the winners opt out.   The Commission releases the name and location of the store where the winning ticket was sold.   So, this is what is released about the winner:   the name of the winner or the person who has a beneficial interest in a legal entity that is a winner.

How to remain anonymous if you are not concerned about an open records request

 

You can block your name and other identifying information from being released to the public by the Lottery Commission  by setting up a revocable trust prior to claiming the jackpot prize.   Your revocable trust would have a separate name but use your social security number for tax purposes.  All documents, including trusts, are reviewed by the Lottery Commission before they process a payout that includes a trust.  For some information about revocable trusts, go here.

 

What are the key points in setting up a revocable trust to receive a lottery jackpot?

 

In order to remain an anonymous winner, the trust name would not include the owner’s name.  The trustee would be someone other than the owner, at least in the beginning.  The first trustee’s job would be to claim the lottery jackpot on behalf of the trust and set up the bank account to receive the money.   Here is an example where the lottery winner is Joe Schmooze:

 

Name of Trust:                                  XYZ Revocable Trust

Grantor:                                             Joe Schmooze

Trustee:                                             Gertrude Smithy, Attorney at Law

Successor Trustee:                           Joe Schmooze

Beneficiary:                                       Joe Schmooze

Contingent Beneficiaries:               Sally Schmooze & Johnny Schmooze

 

The winner’s name released to the public would be the XYZ Revocable Trust and the winnings would be to Gertrude Smithy as Trustee XYZ Trust.  After the intial set up of the bank account, Gertrude Smithy would resign as trustee and Joe Schmooze would take over.

 

How to remain totally anonymous

 

Having one trust to accept the lottery jackpot (as above) is fine, but it does not shield the fact that the owner/winner owns the “beneficial interest” of the trust.  The winner’s name could be revealed through an open records request by someone who really wanted to know.

 

If the lottery jackpot winner wants to remain totally anonymous, he could opt to set up two revocable trusts instead of one.   The first would act as a claiming trust and would stay in effect for a fairly short period of time, certainly less than a year.  The second trust would be a long term trust.

 

Here is the revised example:

 

The Claiming Trust would look like this:

 

Name of Trust:                                  XYZ Revocable Trust

Grantor:                                             Joe Schmooze

Trustee:                                              Gertrude Smithy, Attorney at Law

Successor Trustee:                            Joe Schmooze

Beneficiary:                                       ABC Revocable Trust, Gertrude Smithy as Trustee

 

The Long Term Trust would look like this:

 

Name of Trust:                                 ABC Revocable Trust

Grantor:                                             Joe Schmooze

Trustee:                                             Gertrude Smithy, Attorney at Law

Successor Trustee:                           Joe Schmooze

Beneficiary:                                       Joe Schmooze

Contingent Beneficiaries:                Sally Schmooze & Johnny Schmooze

 

What are the practical problems in doing two trusts?

 

The Trustee would have to open bank accounts for each trust.  The lottery jackpot money would go first into the claiming trust account, then rolled to the long term trust account.  The first account could then be closed and the the claiming trust could be revoked.   The trustee could serve on the long term trust for a certain period of time.   Then the grantor (winner) or another long term trustee (such as a financial person or institution) would take over management of the trust assets.  This two step approach means the “person” claiming the lottery jackpot is the claiming trust (the first trust), and the entity with the beneficial interest is the long term trust (the second trust).

 

Some have set up a limited liability company as either the claiming entity or as the second, long term entity.  Using an LLC would work in much the same way as a revocable trust with a few exceptions.  LLCs are registered with the Texas Secretary of State.   LLCs should have an operating agreement that sets out the roles and duties of those involved with the LLC.   An LLC is dissolved by filing paperwork with the Secretary of State.   An LLC (like a revocable trust) is a pass through for income tax filing.

 

Is doing all of this worth it?  

 

It depends on a couple of factors.  Generally speaking, a $6 million dollar jackpot prize doesn’t generate as much interest with the public as a $100 million dollar jackpot prize.  In a rural area, your $6 million dollars could be big news, especially if you bought the ticket at the local store.

Whether or not you should shield your name depends entirely on how comfortable you are with people knowing that you now have a lot of money. Many winners simply claim the lottery jackpot in their own name.  They are not concerned about everyone knowing about their good fortune.  Later, I imagine a large percent of those winners wish they had been more secretive when claiming their prize.  My advice is to at least do a revocable trust with the elements set out in the first example.  That way the snoopers will have to request the information about any beneficiary of a trust named as a winner.

Until the Texas legislature actually passes a bill that allows privacy for lottery jackpot winners, these are the steps winners must go through to protect themselves and their families.

Good luck to all of you who are playing.

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