The Lotto Effect

The desire to win a big jackpot or a big lotto payout is a fantasy many people harbor. Fortunately the fantasy never materialises for most and that may be in their best interests.

We have all heard the stories that abound about people who have one won big jackpots or lotto payouts only to find themselves in a precarious financial position a few short years after their major windfall.

We can all easily recollect a number of one liners that implore us to spend less than we earn, start saving early, avoid wine women and song, don’t keep up with the Jones’s. The old clichés and adages are really truisms in that they contain much wisdom that we some how chose to ignore to our detriment.

Knowing all these pearls of wisdom and knowing that this is what must be done, we do not heed the advice! The point of this article is not that we should not gamble or play the lotto rather that the way to sustainable financial security and wealth is through meticulous planning and being financially prepared and astute is as a result of being comfortable with and knowing how to deal with money and assets, of course a windfall or a bit of luck is welcome but that is not the primary motivator.

Many of us do tread the well worn path on the way to financial freedom and security yet we fail to consider what lies in store for our spouses or dependents when we pass on. We merrily leave all our wealth and the proceeds of policies to our spouses or dependents with out thinking whether they are capable and or astute enough to look after and increase their new found wealth. This is tantamount to actually ensuring that our spouses or children even minor children have just received a whopping jackpot, with out a clue as to how to manage it. The dreaded LOTTO EFFECT.

On the event of our death the proceeds of a life policy are going to pay out directly to a spouse or child who is conceivably financially impaired, there is a high probability that they will end up squandering the inheritance or the proceeds of a policy or even end up destitute. All of our efforts in saving and implementing sound financial planning to ensure that our loved ones are well looked after on the event of demise can come to nought.

The fact that our beneficiaries very often are the direct cause of their own misfortune is not the only thing to concern ourselves with, a surviving spouse could be responsible for debts relating to our business, vehicles, taxes etc. The proceeds of a life policy could then easily be attached by a creditor of the surviving spouse. A child or beneficiary could be in the same position.

We have at this stage only focused on negative issues. We certainly hope that our spouses or children will take what we have left to them and further or enhance our legacies, by employing, investing and accruing the proceeds of a policy or any other assets bequeathed to them and multiplying their inheritance many times over. Whist this would be admirable it is also sad as the now much increased wealth they have managed to accumulate could be subject to a claim by their creditors in the future or will most certainly be taxed on the event of their deaths and will be exposed estate duties and executors fees.

The only solution to the above scenario is to establish a Trust and ensure that the assets that you wish to ensure is available to beneficiaries are owned by the Trust and equally as important is to ensure that the owner and beneficiary of your life policy is the Trust. The latter course of action will ensure that the proceeds of the policy can never be attached by a creditor of your deceased estate, the proceeds will also be protected from creditors of the surviving spouse or children. The proceeds will in fact also be protected from the intended beneficiaries and you can rest assured that you will have nullified the LOTTO EFFECT, as the proceeds will be available to the spouse and or children in a prudent and managed way, thus protecting them from themselves.

This bold action will further ensure that when the spouse or children multiply the value of their inheritance that these assets and policy proceeds will not be subject to capital gains taxes, estate duty or executors fees in their hands on the event of their deaths.

In conclusion establish your Trust now and transfer all your assets soonest. Discuss your needs with your Financial Adviser now and ensure that the Trust is the owner or at worst the beneficiary of the proceeds of your policies, avoid the LOTTO EFFECT do not gamble with their future!