As tonight’s Mega Millions jackpot climbed to a record $1.6 billion—with $904 million available as a lump-sum payment—and the Powerball jackpot reached $620 million, many players have no doubt dreamed of what they’d do with the money if they win. It most likely wouldn’t go how they think. With all but a few states requiring the winner to identify himself or herself to claim the prize, the winner may find a perfect ticket carries a far greater cost than anticipated.
A publicly identified winner would become a target for “friends” and family who want a piece of the money, as well as for nonfamily grifters and con artists. The stress can be damaging, even deadly, and the government also takes a huge cut (up to roughly half, depending on the jurisdiction where the winner lives). Plus, a big pool of disposable income can be irresistibly dangerous to people not accustomed to managing wealth. Annamaria Lusardi, an economist at George Washington University, has built an entire MBA program around helping pro athletes, for example, learn to manage their money in a way that protects them. The skills to manage a massive fortune don’t come instantly—but grifters do.
I have not designed an MBA program, but I do have some advice for how lottery jackpot winners can spend the money in ways that will benefit their communities and the causes they care about—and simultaneously set both them and their descendants up for life. It’s simple: Create a private foundation and give everything away.
It goes like this: First, you win the prize. Then announce that you are donating it to the [Your Name Here] Family Foundation. Your tax liability is minimized. You receive massive plaudits in the press. Become a folk hero. Appoint only your most trusted friends and family to your foundation’s board and key staff roles.
Just like that, you have created an institution that will provide your family and friends with interesting jobs, comfortable salaries, and high social standing indefinitely. Imagine a foundation with up to $900 million in assets, for example—it would instantly be among the nation’s 100 largest. Based on the most recent available figures, it would be bigger than the Rockefeller Brothers Fund, one of the Rockefeller family’s key philanthropies, and bigger than the Lynde and Harry Bradley Foundation, one of the most prolific funders of conservative causes. Foundations are (generally) required to give away at least 5 percent each year. For this hypothetical lottery foundation, this would represent a $45 million annual payout.
That is a massive sum that you would be free to spend on your philanthropic passion projects. Want to launch a huge and democratic prize for art in your hometown? Want to support society widows in the lifestyle to which they’ve become accustomed? Want to help vulnerable families in small ways that protect children from entering the foster care system? There’s a grant for that. The beauty—and risk—of a private foundation is that, as long as it follows basic IRS regulations to avoid self-dealing by trustees and staff and it provides the proper disclosures, the foundation is accountable solely to those who run it. This accountability gives the foundation the freedom to excel, or to fail, in pursuing the mission of its founders.
Now here’s the part that speaks to the greedier side of our hearts: By creating a private family foundation to manage the distribution of your lottery winnings, you will set you and your heirs up for present and future financial success.
Remember that $45 million annual payout? That can include the administrative expenses of running your foundation, including staff salaries and work-related travel. It would be very reasonable to pay the CEO of such a large foundation a high-six-figure salary, benchmarked to the IRS 990 forms foundations file. Meanwhile, top executives can pull down salaries in the mid–six figures, and program staff can justify low-six-figure paychecks. You can even pay your board trustees a reasonable level of compensation. True, you likely couldn’t afford a massive yacht or a house in Provence, but you’d have a steady income that will support an affluent lifestyle with much less worry that the money will disappear.
Plus, you’d assume the lifestyle of a prominent philanthropist. Everyone around you would suck up to you forever. As a philanthropist friend said when he joined a foundation’s staff, “I’ll never tell an unfunny joke again.” You will be constantly invited to speak at conferences or attend symposia in places like Aspen and Davos. You will be offered awards and honorary degrees and board seats. You might choose frequent travel (possibly first class) to learn about the philanthropic projects you are pursuing. You can call anyone you want and they’ll call you back. Everyone will want your advice. And of course everyone will want your money.
But thanks to the foundation, you’ll no longer have to make decisions about whether to give some of your own money to a friend or family member or neighbor, or how much. As a foundation executive, you’ll be able to run the choice through your internal grantmaking process according to your foundation’s policies. The foundation will decide—not you personally.
If you choose to set up a family foundation in which your kids and grandkids will play a role, your kids will benefit as well. Colleges will court your kids, hoping for access to grants. Nonprofits and companies will hire them. They will have prime connections. (Remember the idea that Warren Buffett didn’t spoil his kids? Except he gave each of them a billion-dollar foundation!)
The private foundation is basically as close as we come to Downton Abbey and the landed aristocracy in this country. They’re largely untaxed pots of money that grow significantly over time, and those who control them tend to build on their successes. If it sounds vulgar to champion them, well, it’s better than what most lottery winners do with their money (namely, blow it). And foundations are also an essential vehicle of American civil society. They fund political change from both the left and the right, and they’ve done remarkable work in an array of nonpolitical areas to improve human lives and foster discovery. They are a major part of our national and local economies.
So if you become a Mega Millions winner tonight, give it all away immediately—and in one swoop become a public hero, minimize your tax liability, serve your causes, and set yourself and your family up for life. Not a bad deal.