Complications for Some Lotto Winners

What happens if you win the state Lottery, but just when you’re about to receive your first cash payment, you get hit by a car? Sounds grim, but it’s a real possibility, as noted in several questions by a Bakersfield reader. Does the state keep the prize money after the death of a winner? And if you’re one of those winners who joined forces with friends in a Lottery pool, do your partners still get their fair share if you’re not around to cash the winning ticket?

First of all, you needn’t worry about the state keeping the money. All payments of Lotto winnings, throughout the 20-year payment schedule, will be made.

“We will pay it to somebody either pursuant to will or statute,” says Roland Bowns, chief counsel for the state Lottery commission. “The checks don’t stop early.”

Distribution of Money

If a person’s estate is not probated, or there is no will, then the prize money will be treated in the same way state retirement benefits are distributed. First, Bowns explains, the money would go to the spouse, but if there is no spouse, then to the person’s children. If no children, then to the parents, and if no parents, then to the person’s siblings.

For example, recently a young $100 winner died before being paid. The state Lottery commission paid his winnings to his mother, because his estate was not large enough to be probated and he had no spouse or children, according to Bowns.

Because the Lottery apparatus legally recognizes only one winner of a prize, betting pools can be a little tricky. All Lottery winnings are paid directly to one winner, who can share the money with his friends or partners, in accordance with any understanding or agreement, but the state will not issue more than one check. And the winner cannot legally assign or transfer his future winnings, at least from the perspective of Lottery officials.

If you are thinking of pooling resources with some co-workers, you would be wise to have a written agreement, however brief, about the sharing arrangement. It is even possible that an oral agreement could be held unenforceable.

Besides, an oral agreement could be difficult to prove if your colleague suddenly had an unexplained loss of memory or left with the cash on an unplanned vacation to the Bahamas.

The paradox is that if you were sure you would win millions of dollars, then you’d want a lawyer to draft a tight, elaborate, joint venture contract to protect your rights. But because almost all of these agreements wind up being worthless, it may not be worth the money to hire a lawyer. But you should have something in writing.

Even if the agreement is only a paragraph, it’s better than nothing. Be sure to say each participant contributed equal shares, that you agree to share the proceeds equally, and that you each have the right to transfer, assign or bequeath your individual share. You’ll also have to decide at some point whose name goes on the Lottery ticket, because that person will be the winner, in the eyes of the state Lottery commission.

If you do win, then it is essential to consult a lawyer to set up a trust or other mechanism to ensure that each member of the pool and their heirs, get their share over the life of the payments. The 25 Sears employees in Sacramento who won a third of the $60.8 million Lotto jackpot in October retained a lawyer to draft a trust agreement. The named winner will transfer the winnings into the trust, which will then distribute it to the participants in the pool, after deducting legal and other expenses, according to Tom Sullivan, a financial adviser.

Because the Lottery commission cannot legally distribute the winnings directly to a trust, corporation or group, if you win as part of a pool, you’ll be relying on the good faith of the winner not to skip town as soon as he or she gets paid. A winner “could try that, and I imagine that the thought goes through some of their minds,” Bowns said.

Of course, if the winner did sneak off with your share, you’d be able to file an appropriate lawsuit, but that takes time, costs money and would be a mighty headache, even assuming you found the person (he’d presumably have to be available to get his check each year) and eventually won the case.

There are some legal and practical risks to joining a Lottery pool, but, if you win, I suppose it’s all worth the minor risk. Certainly, there will be plenty of lawyers and financial advisers available to help you protect your new-found wealth. And you’ll be able to afford them.