Lotto millions a mixed blessing

When Lotto's latest $5.5 million Powerball winner's feet touch the ground he or she is going to have a lot financial planning to do.

A surprising number of winners fritter their cash away on the high life but, says Spicers financial planner Jeff Matthews, invested wisely the windfall will continue to grow, securing the financial future of generations to come.

Only one of the three winners Matthews has advised in the past managed the win wisely.

The woman died from cancer only a few years after her win, but she had taken financial advice, bought mortgage-free properties for the children and set up trusts that withheld the bulk of their inheritance until they were 30.

As for the other two winners, Matthews struggled to get them to take a sensible financial path. All the husband of one couple that won $2 million wanted to do was to "buy cars and spend, spend, spend".

The husband went right off the financial rails. "The best part of $90,000 was blown in capital loss by two cars, that were worth less than $20,000 five years later," Matthews says. He also lost money when he turned his hand to property development.

The marriage was put under severe pressure because the wife was more conservative with money. Eventually, Matthews had to split the investment account in two to stop arguments.

They later had to go back to work but their saving grace was buying mortgage-free properties for themselves in town and a beachfront bach - both of which have more than doubled in value.

Matthews' advice to lottery winners, or people who inherit money unexpectedly, is to "have a little bit of a party, but put [the bulk] of it in the bank and sit on your bum for a year". That leaves time to work out what your financial goals are and learn about tax structures.

In a high-interest savings account such as Superbank's, which is paying 6.7 per cent, a $5.5 million deposit would return $357,500 a year.

Over the long-term, the money would do better in other investments such as equities, funds and property. However, that raises risk tolerance issues, which generally are lower than people realise. One client panicked when the sharemarket gyrated and his $1 million investment went down.

Smaller wins, such as $2 million, may sound enormous, but if you want to buy a decent house mortgage free, there's not much left to invest.

Lotto is indiscriminate. Helen Morgan-Banda, head of communications and government relations, says a cross section of society plays lotto.

What that means is that winners are not always the selfless individuals we'd like to see win. In the UK last year, a rapist on weekend leave from jail won £7 million ($17.3 million).

Morgan-Banda said most winners had money-savvy friends or family who could help direct them but, even so, they should get professional advice.

Matthews said while this might be a short-term help, it did not always pan out over the long term. Lottery wins could and had torn families apart.

The American wife of a lottery winner who took home US$314 million ($430 million) regrets her husband ever bought the ticket - the family suffered thefts and the husband was arrested on drunk-driving charges and in bar and racetrack fracas.

Ross Knight, an Auckland-based lawyer specialising in relationship property, said because lotto wins had such a potentially disastrous effect on marriages, it was worth considering the legal implications.

If the ticket was bought with the weekly shopping out of money that was relationship property, then the winnings were shared. However, if the ticket was a present from outside a relationship then it could be argued that the winnings should be treated as inherited money, which was separate.

Setting up family trusts was a possibility and was wise for single people wanting financial protection from future relationship breakdowns, providing they combined it with a pre-nuptial-style legal agreement. Trusts, however, might be of little benefit if a couple broke up soon after founding one and then wanted to dismantle it.

THE COST OF LUXURY

* Wheels: A Porsche 911 Carrera S Cabriolet soft top costs $258,000 at Continental Cars in Auckland.

* Private plane: A four-seater Cessna 172 will cost up to $400,000. A private pilot's licence will cost $11,000 and maintenance and hangarage can add another $10,000 a year. A classic Boeing Stearman bi-plane, as owned by Paul Holmes, costs about $1 million.

* Luxury cruise: The creme-de-la-creme 16-day Singapore-to-Sydney cruise on the Silver Shadow liner costs US$12,190 ($16,700).

* Beachfront bach: Bayleys is marketing a waterfront property at Algies Bay for about $2 million.

FOREIGN LOTTERIES AND SCAMS

To foreign lottery punters, the highest Powerball win here - $14.8 million - is chicken feed.

The latest Powerball jackpot in Iowa, US, will be around US$72 million ($96.7 million) and the UK-based EuroMillions draw was for 15 million ($37 million). But check if you're eligible. Many are only open to locals.

There are many online lotteries worldwide but they need to be approached with caution as some websites may be fraudulent. Scams are common. Usually, the fraudsters send official-looking letters notifying people they have won money in a foreign lottery. To claim the prize, they have to pay a sum of money, running into thousands of dollars, to cover taxes, bank costs and processing fees.

No lottery should require you to pay money to receive your prize and, if you haven't bought a lottery ticket, you can't have won.

THE TOP 10 PURCHASES FOR UK WINNERS:
1. House
2. Car
3. Holiday
4. Jewellery
5. Holiday home
6. Pet
7. Sound system/home cinema equipment
8. Football season ticket
9. Farming land
10. Painting/art

BEST THINGS ABOUT WINNING:
1. Financial security
2. No worries/pressure/stress
3. Being able to retire/give up work
4. Being able to look after family/friends
5. Paying off the mortgage/buying a home
6. Being able to afford private education
7. Seeing people's faces when you help them out
8. Spending more time with family
9. Having more children
10. Meeting new people and enjoying new experiences

nzlotteries.co.nz

gamblingproblem.co.nz