No Fast Way to Get Lotto Winnings

Q. I know prizes in the California Super Lotto are paid out in 20 equal annual installments. May a winner sell his rights to collect those winnings to gain immediate cash? How do groups of winners collect their winnings? Does the lottery allow more than one individual to claim a portion of the prize? Or would the group have to set up a trust or corporation? How are taxes computed on group winners, and how are they paid? --A.P .

A. All Super Lotto winnings, as well as Big Spin winnings in excess of $1 million, are paid out in equal installments over 20 years from annuities and bonds the state purchases to cover its lottery obligations. State law specifies that the right to collect such long-term payments cannot be transferred or assigned to another person except in the event of death or a legal judgment such as divorce.

Players who pool their stakes and play as a group are paid their shares individually. Upon winning, each member of a group must complete a special form delineating the share he or she is due. To avoid conflict, state lottery officials recommend that people playing as a group firmly establish how any winnings will be split before the first bets are placed. The state has drafted a model agreement that is available by sending a self-addressed, stamped business envelope to the California Lottery Public Affairs Office, 600 N. 10th St., Sacramento, CA 95815.

Federal taxes--California lottery winnings are not taxed by the state--are deducted before winnings are paid. The state withholds 28% on behalf of the federal government; any additional tax must be paid by the winner.

Don't Bail Out of Ginnie Mae Investment

Q. I have invested about half my savings in Ginnie Mae mutual funds operated by two separate national brokerages with good reputations. I am getting good returns and until recently my investments had even grown. However, now that interest rates are rising again, the value of my investments has dropped dramatically. Are they still safe? We are thinking of selling because we can't afford to lose our principal.-- R.L .

A. Be calm and stay put; the last thing you want to do when interest rates start to gyrate is panic. According to our financial planning experts, Government National Mortgage Assn. securities--better known as Ginnie Maes--are a fine choice for you. And the experts say you were wise to purchase these securities through a mutual fund with a strong track record. Still, there are a few points we should cover about them.

As you no doubt know, Ginnie Mae securities are invested in mortgages issued to homeowners by the nation's thrifts. These mortgages are collected in large pools, given the backing of the "full faith and credit" of the U.S. government, then resold to investors either directly or through mutual funds. On average, these bonds yield returns from 1% to 2% higher than U.S. Treasury notes and bonds. The government guarantees repayment of the principal but not payment of the interest--although every effort is made to pay the interest, and it normally is.

But although the government guarantees the basic safety of your money, your investment is not completely predictable or fixed. When interest rates tumble, homeowners rush to refinance, and Ginnie Mae investors are paid off early. Although the initial maturity of Ginnie Maes extends 15 to 30 years, experts say investors should figure on a seven- to 10-year lifetime. This means investors often find that they get their money back sooner than expected and at a time when interest rates are lower than those they'd been getting from their Ginnie Maes.

In addition, the trading--or secondary--value of Ginnie Maes does not remain constant. When interest rates drop, the value of higher-paying mortgage pools rises. When rates rise, the value of a particular Ginnie Mae fund could fall.

But these fluctuations shouldn't affect you unless you are actively trading your Ginnie Maes. If you are merely holding them for the income, you should ignore the market gyrations. You haven't really "lost" any money in recent months because of rising interest rates any more than you "made" money over the last several years when interest rates fell.

What you had were paper gains you never realized. Now these gains have been eroded. Your principal is completely safe, and you have received--and are highly likely to continue to receive--your regular interest payments. It doesn't sound as if it's time for you to bail out, does it?

Using 'Buy-Sell' to Divide Assets

Q. I own an apartment house 50-50 with a partner. I want to dissolve our partnership, but we can't sell the property in this market. I made my partner a "buy-sell" offer at a price I was willing to pay or accept, at his option. He says my approach isn't reasonable. Am I missing something?-- M.D.P .

A. Our experts say a "buy-sell" offer such as you have described is the standard, and perhaps the best, method for arriving at a mutually acceptable price when dividing or allocating assets. If you think about it, it makes sense: You are either willing to pay that price for your partner's share or accept it as payment for your own. (This is also used in splitting marital assets in a divorce.)

In many cases, such an arrangement is specified in the initial partnership agreement as the method to be used if the partnership is terminated. However, you should not set your "buy-sell" price without some professional help; get at least one appraisal from a reputable professional.

Why is your partner balking? Perhaps he is trying to thwart the dissolution of your business relationship. Another possible scenario--and one that shows a downside of the "buy-sell" method--is that he cannot afford to buy your share at any price now and thinks you are offering too low a price for his.

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