How to Use a Blind Trust for Lottery Winnings

Lady Luck has paid a visit, and the lottery company now owes you a substantial sum. Before cashing in and shopping till you drop, carefully consider the often unfortunate consequences of an unexpected (and public) money shower. You'll gain new friends and encounter family members you never knew you had, and you'll have to consider just where to put the loot (inside the mattress is not a realistic option). Things can get really tangled if you're sharing the winning ticket with another buyer. For a variety of issues, an irrevocable blind trust provides a useful answer.

What's a Blind Trust?

The most common use of a blind trust is to shelter trust owners from legal and ethical conflicts. An elected representative, for example, wants to steer well clear of handling public policy that affects companies in which he has a personal investment. The blind trust accomplishes this by keeping all information on trust assets completely confidential from the grantor (the individual who sets up the trust); in certain states, including Delaware, Kansas, Maryland, North Dakota, Ohio and South Carolina, state law allows lottery winners to claim their prize while remaining confidential. A blind trust can act as the agent of the grantor when handling a sensitive financial matter, such as a winning lottery ticket.

Placing the Ticket

You set up a trust by creating a document, known as a deed of trust, that names the trustee who will be handling the assets and dealing with the beneficiaries who will receive them. You can include instructions in the trust document on how the trustee is to handle, invest and distribute the funds. You can name any organization or adult individual, except yourself, as a trustee. An irrevocable trust is one that can't be changed or revoked except under limited circumstances. This kind of trust is exempt from federal estate taxes but must file an annual income tax return. In addition, an irrevocable trust is not subject to claims by your own creditors. The trust can accept valuable assets, including a lottery ticket, which when signed over by the owner becomes (confidential) trust property. The trust will distribute its assets by the deed's written instructions; the grantor on drawing up the trust decides how much, when and to whom the lottery money will go.

Multiple Winners

It's common for two people or a group to share in the purchase of multiple lottery tickets and thus improve the odds for a win. The downside: a win in this case means multiple winners, each with a dream and a bit of anxiety about how to divide and handle the money. A blind trust set up by a completely neutral, professional trust company or attorney is the best solution, as long as everyone in the group agrees to set it up. The trustee serves as the cashier, the asset manager, and the referee if any disputes arise. On establishing a blind trust for any reason, the grantors give instructions on how the trustee should invest and handle the funds; a carefully worded trust thus can avoid the situation of any single individual blowing the money and sending out a financial distress call to the more prudent winners.

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