Winning the lottery: How to protect a win-fall

Houston is buzzing after one ticket purchased at a Sugar Land convenience store turned out to be the $800 million Mega Millions winner.

If you've ever played the lottery, you've probably dreamed of spending the winnings.

But some winners have lost it all!  So we consulted a financial planner for advice to help winners keep their unexpected pot of gold.

First, here's what $800 million actually looks like.

OTHER SMART SENSE: First time homebuyer assistance programs available

If you take the lump sum, it will be $404 million.  But the Federal marginal tax rate could be as high as 37%, leaving you with $254 million.

Or if you take the 30 annual payments, at that 37% federal marginal rate, you'd get $17 million a year.

Buying a lottery ticket is a ticket to dream.

"I'm going to share it with my fiancé, my sister, my family, well some of them," laughed one lottery player.

A large jackpot changes the lives of most winners for the better.  

But one-third of them go broke, according to the Certified Financial Planner Board of Standards.  

And some lives have been shattered after winning.

OTHER SMART SENSE: Could new catastrophe insurance help cut homeowners' insurance costs?

Jack Whittaker of West Virginia won $314 million.  Within two years, their granddaughter died while struggling with drug addiction.  Whitaker faced multiple lawsuits and was arrested twice for drunk driving.

Abraham Shakespeare of Florida was murdered after winning the lottery.

And Amanda Clayton won $1 million but made headlines for continuing to collect food stamps.  She was found dead of an apparent drug overdose.

No one wants that to happen to the $800 million Mega Millions winner, so we consulted a financial planner for advice.

Our first question: is it better to take the lump sum payment or the 30 annual payments?

"If you’re willing to invest it, you can usually do better," said Michael Neuenschwander with Outlook Wealth Advisors.  

"But if you’re worried you may blow too much of the money, if you take that annual payment, you can make sure you don’t blow it all or lose it all," he said.

Our next question:  How can winners handle people asking for money or trying to scam them out of it?

"One of the things you want to do is have your team in place, so to speak, a financial advisor, an attorney.  And in one sense, you can let those professionals play some defense," Neuenschwader suggested, saying have them evaluate investment opportunities or requests for money and play the "bad guy" when the answer is no.

OTHER SMART SENSE: First time homebuyer assistance programs available

In Texas, lottery winners with prizes over $1 million can choose to stay anonymous.  That can help winners avoid unwanted attention and requests for money.

"You can set up an LLC or a trust.  You, of course, control the entity.  Sometimes the attorney acts as a go-between.  The mail goes to a P.O. Box, so you’re not getting thousands of pieces of mail for every offer," suggested Neuenshwander.

The winner has six months to collect the winnings, giving them time to get a financial advisor or attorney in place.

Sullivan's Smart SenseConsumerNewsHouston