Dick Adams <rdadams[at]smart.net) wrote:
- quote -

Just make sure that you set up the trust BEFORE YOU BUY THE
TICKET.....

Jerry Doblie
14045 Sunnyside Ave N
Seattle, WA 98133
206-365-0143

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The charitable trust idea would almost never work, unless
you already had a well-aged, bona-fide charitable trust up
and running and expressly made the purchase of the lottery
ticket in the name of the trust.

Further, while the structure above might (emphasis on
"might") work for tax purposes, it may, however, subject the
trustee to liability under applicable state law for
violating your fiduciary duties as trustee of a charitable
trust - I rather doubt if investing in lottery tickets would
meet the prudent investor rules that typically apply to
trustees.

Finally, you might try the gambit of setting up a bona-fide
charitable trust, aging it well, and then buying the ticket
yourself and then contributing it to the trust prior to the
drawing. At that point, the value of the lottery ticket is,
presumably, the amount you paid for it.

However, unless you do this consistently over a long period
of time and contribute a substantial number of losing
tickets to the trust in a well-documented manner, the IRS
and the courts are liable to simply look through your single
contribution of the winning ticket and find that, in
substance, you personally bought the winning ticket and won
the money, and then contributed your vested right to those
winnings to the trust.

Lastly, in order to have a bona-fide charitable trust with
which to play this game, you will most likely have to start
it up with a not-insubstantial amount of seed money;
otherwise, you may find your local attorney general shutting
the charitable trust down (depending on applicable state
law).

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es330td wrote:
- quote -

My brother (who is also a CPA) and I discussed this a few
years ago. We agreed someone doing this would have the
following problems:

1. Proving the ticket was actually purchased for the trust!
One way is to purchase a lottery subscription in the name
of the trust. You will need a bank account for the trust
in which to deposit the annual proceeds (about a 5 to 10%)
from the trust winning smaller prizes.

2. Be prepared for an annual fine tooth audit of the trust
each and every year for the life of the trust.

3. At audit time, your expenses are going to examined at the
greatest detail in an attempt to classify them as income
to you so that the auditor can penalize the trust for under
withholding FICA and Medicare and you for under reporting
your income.

4. Expect the IRS to send in a specialized audit team to
audit the behavior of the trust in an attempt to justify
revoking the trust's tax exemption.

Why would the IRS do this? On $20 million in lump sum paid
to the trust, you will have ripped off about $8 million in
taxes from the Fed and the State - and they wabt it back.

For that kind of money, I suggest paying the taxes and live
like royalty on a 5% annual return of $600,000. Find a nice
place to live where nobody knows you won a lottery and relax
in the quiet enjoyment of your life.

Dick

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es330td wrote:
- quote -

It's only possibly reasonable if the trust held the ticket
before the drawing. Even then I'm not too sure.

- quote -

Frankly, I wish I would have so much income this year that my
federal income tax would be several millions of dollars, tens
of millions even. Giving up first class travel and first
class living accomodations in order to spite the government
seems very similar to cutting of one's nose to spite one's
face.

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My interest wrote:

- quote -

A CPA told me once several years ago that one possible
option would be to create a charitable trust and let the
trust claim the lottery. As a charity it would not pay
taxes on the lottery winnings or taxes on the income from
investing said assets. You will of course pay taxes on the
income from the trust but a much smaller amount is exposed
to the highest marginal rates and you get to help a lot of
people through your charity. Since you won't have access to
the money you won't be able to buy a Learjet or some small
country in the Caribbean but you will have a comfortable and
secure livelihood for the rest of your life and not turn a
huge amount of it over the government at the time of the
win.

I'm not a tax expert but this seemed reasonable to me.
Comments?

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No.

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My interest wrote:
- quote -

NO!!! Although there may be an option to take the payout
over a number of years. The income would then be taxed in
the year it is received. Of course, if one is able to
itemize, one may be able to deduct gambling losses in an
amount not exceeding their gambling winnings. If your
lottery win came about as a result of playing your home
state lottery, although taxable by the feds, those winnings
are usually not taxed by that state.

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My interest wrote:

- quote -

Nope

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"My interest" <myinterest[at]gmail.com> wrote
- quote -

If you can get away with convincing the lottery board that
the trust bought the ticket, then go ahead.

The tax rates for the trust are 18-46%, so a $2 million
lottery winning would get whopped with $780,000 in taxes.
That same $2 million winning by an individual would be
subject to 35% tax or $673,251 in tax maximum. So you now
have a trust return to prepare and file (not to mention the
accounting issues), you pay about $100,000 more in taxes,
and you don't have use of the money.

What's that? You're the beneficiary of the trust? Then you
have taxable income of the trust income or distributions,
depending on the type of trust you establish.

Either way, you're creating a costly monster.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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"My interest" <myinterest[at]gmail.com> wrote:

- quote -

No. In some states you have a choice whether to take large
lottery winnings paid out over time (e.g. 20 years) or
receive the current value of that income stream all at once.
Spreading out the payments may result in lower taxes, but
may not be the best thing to do in the end.

You might be able to claim that various family members all
bought the ticket together, so it's a partnership and each
gets his share. That could reduce taxes a bit, too, but
then you really have to share the money.

Stu

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My interest wrote:

- quote -

Nope.

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Not a real case, but I just wonder if someboy wins a
lottery, is there any way to avoid paying income tax on
that? ... e.g. by puting the proceed to a trust etc?

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