Pull out those lucky golden tickets because the Mega Millions lottery jackpot has reached a record $1.6 billion. (The Powerball isn’t too shabby either, at $620 million). Undoubtedly, we’ve all daydreamed about what we would do with cash like that. Maybe your dream is jet setting, paying off debt (and then some), funding educations for your entire family, building a swank mansion stocked with Teslas…but, let’s bring it back to reality for a moment and talk about two perfectly practical and important things you SHOULD add to that list if you’re suddenly a Mr./Mrs. Money Bags.
Make an Estate Plan
It’s definitely true that estate planning is not just for the wealthy, but that doesn’t mean it’s NOT for the wealthy too! Estate planning is essential for the effective and successful transfer of wealth for high net worth individuals. A quality estate planner will take all assets (from artwork to real estate to investments) into consideration when deciding what strategies, vehicles, and tools to maximize your goals, tax savings for your estate, and solidify your legacy. (You do not want to join the likes of these celebs who passed away without a will!) With a high net worth, you definitely need to consider different types of trusts in addition to how best to practice charitable giving through testamentary gifts.
If you already have an estate plan, that great! But, with a massive influx of wealth you’ll likely need major updates and revisions.
Found a Private Foundation
Undoubtedly, if you come into massive wealth everyone is going to come out from the woodwork to try and get a piece of it. It’s great to share your winnings with the people and causes you care about, but you definitely don’t want fraudsters, scammers, or thieves looking to swoop in a take a piece of the pie. One of the best ways to protect your cash is by founding a private foundation. After you win, donate the money to your newly founded [Insert Your Name Here] Family Foundation of which you can serve as the executive director.
This is a smart move on multiple advisable fronts. For starters, because a private foundation is a charitable organization, you minimize your personal tax liability greatly. Furthermore, and more importantly, you get to use your endowed Foundation to support your charitable passion projects, help your community, and solidify a reputation for being an influential philanthropist. (Inspirational speaker circuit anyone?)
The private foundation, with its sound investment policies, is also a good way to have the principle grow significantly over time.
With a private foundation, you can serve as the executive direction and then hire family members and friends to essential administrative roles. Wondering how you actually “see” any of that money you transferred to your foundation? Salaries for such positions can be established based on private foundations of a similar size and wealth, so you can expect at least “enough” for an affluent life.
When founding a private foundation, enlisting an experienced nonprofit attorney is a must. Have your attorney advise on the IRS regulations you need to adhere to like filing the appropriate documents, refrain from political donations, and adopt important good governance policies and procedures. Additionally, you’ll want to avoid self-dealing like the plague! That means you can’t use foundation funds for your personal benefit, even if you founded it, because the foundation is completely separate different legal entity with a governing board of trustees who owe the foundation a fiduciary duty.
There is much more to be said on the minutia of forming a compliant, successful private foundation, but we’ll save that for a future post! In the meantime, if you have questions, don’t hesitate to contact me!
You don’t need to be a lottery winner to establish a charitable organization (private or public)! With a mission, vision, and the tenacious drive to make an impact, you can form your own organization at any time if you follow the proper process. I’d love to help make your estate planning goals and charitable organization dreams happen at any asset level. Schedule your free consult or drop me a line via email or phone (515-371-6077).