3. Avoid sudden lifestyle changes.

Forbes: 10 Things to Do When You Win the Lottery

For the first six months after you win the lottery, don’t do anything drastic, like quitting your job, buying a McMansion, or trading up for a luxury car. Meanwhile, set aside a fixed amount for splurges—it’s only natural to want to celebrate your windfall.

Save the big purchases for later. For example, you could rent a house in the neighborhood where you were thinking of moving, before you make any commitments, says Guerdon Ely, a financial planner in Chico, Calif. If you need a new car, buy a budget model for now.

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10 Things to Do ... By Deborah L. Jacobs

If you win the jackpot in the next lottery drawing, you won’t ever have to worry about money again, right?

Wrong.

With good money management you–and your heirs–could live handsomely for many, many years. But from the moment that you claim that prize, you will be descended upon by vultures who want a hefty helping of those winnings. And if you didn’t have smart money habits up until now, you could easily turn out to be your own worst enemy by quickly squandering the fortune.

The first precautionary step you should take between now and the drawing is to sign the back of the ticket, says Carolyn Hapeman, a spokeswoman for The New York Lottery. A lottery ticket is a bearer instrument, she explains, meaning that whoever signs the ticket and presents a photo ID can claim the prize. So if you haven’t signed the ticket and it blows out of your hand while you are waiting for a bus, or if you show it to a buddy in a bar and accidentally leave it on the counter, you’ve lost the loot.

Here are some steps to help you steer clear of additional risks. Most of them work well for other windfalls too–for example with sudden wealth that comes from an inheritance or the sale of a business.

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1. Remain anonym... Once people know you’re suddenly wealthy, you’ll be badgered by requests for handouts from everyone from charities to long-lost friends and relatives–not to mention all the financial “experts” who will be vying for your business. So check state rules to see whether you can dodge them all by remaining anonymous.

Although Mega Millions is a national lottery, rules on winner publicity vary by state. In New York, for example, winners’ names are a public record. Elsewhere it may be possible to maintain your anonymity by setting up a trust or limited liability company to receive the winnings, says Beth C. Gamel, a CPA with Pillar Financial Advisors in Waltham, MA. A client of Gamel’s who won a past lottery did that, and had a lawyer claim the prize on behalf of of the trust.

Depending on where you bought the ticket, prize winners have between 180 days and one year from the date of the drawing to claim their prize. So find out what the state rules are and plot a course.

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2. See a tax pro... You have the choice between taking the prize money all at once or having it paid out over 26 years in the form of an annuity. With a lump sum payment, you must immediately pay tax on the entire amount, says Michael A. Kirsh, a financial planner in New York. With an annuity, you are taxed only as you receive the payments. People who have trouble controlling their spending might prefer the discipline of receiving the money as an annuity. But this payout form has other drawbacks, Kirsh notes. You will want to compare the effective yield of the annuity with what you could earn by taking the money as a lump sum, paying the taxes and investing the proceeds.

Another issue to consider is whether taking an annuity will leave your family without the cash they need to pay estate tax if you die before the 30-year period is up, Kirsh says. In such situations people typically buy life insurance policies to cover the estate tax bill.

You have 60 days from the time you claim your lottery prize to weigh the pros and cons. During this time, ask advisors to crunch the numbers and help you decide which type of payment suits you best.

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3. Avoid sudden ... For the first six months after you win the lottery, don’t do anything drastic, like quitting your job, buying a McMansion, or trading up for a luxury car. Meanwhile, set aside a fixed amount for splurges—it’s only natural to want to celebrate your windfall.

Save the big purchases for later. For example, you could rent a house in the neighborhood where you were thinking of moving, before you make any commitments, says Guerdon Ely, a financial planner in Chico, Calif. If you need a new car, buy a budget model for now.

(iStock)

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The Biggest Lottery Winners Ever
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4. Pay off all y... As I wrote in my post, “The Best Investment Advice I Ever Received,” there is no better investment than paying off debts. Whether it is credit card debt or a mortgage, your rate of return equals the interest rate on the loan. With today’s abysmal yields on relatively secure investments like CDs and Treasurys, that’s especially true. When you’ve paid down a dollar of debt, that’s a dollar you no longer owe. When you invest a dollar, you can’t be sure whether it will grow or shrink.

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5. Assemble a te... In situations like this it’s very hard to know “who’s trying to help you and who’s trying to use you,” says Ely. Rather than signing on to a group of advisors that someone else has put together, he recommends handpicking your own lawyer, accountant and investment advisor, and requiring them to work together.

Carefully vet each advisor before discussing your situation. Check broker records at the Financial Industry Regulatory Authority. For attorneys and insurance agents, see whether there have been any complaints filed with state disciplinary authorities.

If you live in a small community and don’t want lawyers there to know your business, seek out a professional in the nearest large city. Names can be found on martindale.com, the nationwide lawyers’ directory that you can search by location and area of practice, and on the website of the American College of Trust and Estate Counsel, a group of trust and estate lawyers.

In effect, the team you put together will function as your board of directors, Ely says. You can start by having a fee-only advisor put together a long-term financial plan and running it by the group for comment. Once you’ve decided on a plan, they can provide checks and balances on each other. You can ask one of them to serve as quarterback, coordinating the group effort. That person can also play the “bad guy,” declining requests from people or organizations for gifts that you don’t want to make.

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6. Invest pruden... Ely recommends putting the money in safe, short-term investments and not even touching it for the first six months. Then ask your advisors is to put together an investment portfolio divided half-and-half between equities (such as stocks) and fixed income (like bonds). Don’t fall for investments that you don’t understand or that sound too good to be true.

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7. Live within a... Especially if you’re not accustomed to having a lot of money, it may take some discipline to preserve your winnings and not go on a wild spending spree. One way to restrain yourself is to only spend income–not principal. Especially in today’s investment world, “It takes a lot of principal to generate income and once you start spending principal, the principal quickly dissipates,” says Dennis I. Belcher, a lawyer with McGuireWoods in Richmond VA.

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8. Take steps to... People who are worth a lot of money need to guard against losing assets to creditors. They include everyone from disgruntled spouses and ex-spouses to people who win lawsuits against you. If people think you have deep pockets they may look for reasons to sue. “If you win the Powerball, everyone’s going to be laying in front of your car so you can run over them so they can sue you,” says Ely. It’s prudent to ensure you are not an easy target.

The best defense is to erect a variety of roadblocks that make it difficult, if not impossible, for creditors to reach your money and property. These asset protection strategies, as they are called, can range from relying on state-law exemptions to creating multiple barriers through the use of trusts and family limited partnerships or limited liability companies. It may be possible to rely on a variety of strategies, either separately or in combination with each other.

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9. Plan charitab... You can offset the additional income from your lottery winnings with a charitable deduction. But you must make your donation by Dec. 31.

For gifts to a public charity, donors are entitled to an income tax deduction for up to 50% of adjusted gross income (AGI) for cash contributions and up to 30% for donations of other appreciated assets held more than 12 months.

If you are unable to decide between now and year-end which charities to support, it may be worth considering a donor-advised fund. With a donor-advised fund, you can make a charitable donation this year and claim a federal tax deduction for your irrevocable contribution but postpone recommendations about which charities should receive grants from the account until some time in the future.

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The Biggest Lottery Winners Ever
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The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.
10. Review your ... If your winnings have made you suddenly wealthy, this may be the first time that you need to plan for estate tax. The sweeping tax overhaul of 2010 offers more flexibility than ever before. Each person has a $5 million limit on tax-free transfers, which can be applied during life, when you die or some combination of the two. If Congress doesn’t act by the end of this year, that exclusion amount will revert to $1 million and the tax rate will increase to 55%. So if you want to share some of your largess with family and friends, this is the ideal time to do that.

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The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.
More from Forbes Click here to see the biggest lottery winners in history.

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The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.