Mega Millions $640M: What to do if you win

HAWTHORNE, CA - MARCH 29: Lashawn Silver (L) looks on as Jesus Vazques helps her buy her Mega Millions tickets at Bluebird liquor store on March 29, 2012 in Hawthorne, California. The Mega Millions jackpot has reached a record high of $540 million (Photo by Kevork Djansezian/Getty Images) Kevork Djansezian

(MoneyWatch) The Mega Millions jackpot has reached historic proportions. The estimated $640 million payday is among the largest lottery jackpots in world history, surpassing the previous U.S. record of $390 million, according to lottery officials.

If you're like most, you've been daydreaming about how you would spend the jackpot. Beyond the fantasy, what would a massive windfall mean to you? As a former investment advisor who actually had a client who hit the lottery, I have a little advice about what to do if you actually win.

The first thing to do is to read the rules on the ticket and on the lottery's website. Sign your name on the back of the ticket, unless the rules forbid it. Then make a copy of it and put it in a safe deposit box. Don't mess around with this part -- you just defied the odds, the gods and just about every rule of nature! But don't feel compelled to tell the world just yet. In fact, while this is amazing news, try to refrain from telling anyone beyond your nuclear family. In fact, you can even take your time before contacting the lottery authorities, because they usually provide a pretty lengthy time period (180 days) before you lose your chance.

The next step is to assemble your team - and not an entourage, thank you very much! You need to interview estate attorneys, accountants and financial advisors. My clients did something incredibly clever when they approached potential professionals: They went through the interview process by discussing their situation, but held back the exact total of the windfall amount until late into the meeting. "That way, I could tell what kind of person I would be dealing with -- in other words, do theses people treat all of their clients with respect or just the rich ones?" One important caveat: You don't want to have just one money manager - you can assemble anywhere from three to six who have different areas of expertise.


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Once you hire an investment advisor, the next question is whether to take the lump sum or the stream of income. At this point, the lump sum for the $640 million prize is $462 million, before taxes and the annual payments over 26 years would be about $24 million before taxes. (For every $1 million in the jackpot, the annuity payment is approximately $38,500 per year before taxes.)

. The federal tax is 25 percent; then there's your state income tax and in some cities, there's yet another tax. For most, assume that at least a third of the winnings will go to taxes. So the after-tax lump sum would be about $305 million and the after-tax annuity is approximately $15 million per year.

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    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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