American Greed

Your step-by-step guide to winning the lottery: Would you know what to do?

How to win at winning the lottery
How to win at winning the lottery
How to win at winning the lottery
How to win at winning the lottery

What is the first thing you would do if you won the lottery?

A New York attorney who says he has represented more than 30 lottery winners has two words of advice: "Stay quiet."

"You want to make sure you don't tell your family and your friends that you're this new multimillionaire," self-proclaimed "lottery lawyer" Jason Kurland told CNBC's "American Greed." "I know it's something you're going to want to do but you really need to keep quiet."

Kurland says those early days after the drawing are critical. You only get the one chance to do it right.

"The time between the time you know you won and claiming (your prize) is your last chance of normalcy," he said. "So that's the time you're going to want to assemble your team of professionals: lawyers, financial planners, accountants. And you don't want friends and family coming out of the woodwork asking for handouts before you've even come forward to the world."

Kurland has represented some of the biggest lottery winners in history. It is a tiny niche in the legal profession, but one he finds fascinating.

"Everybody plays the lottery, whether you're from a rich neighborhood or poorer neighborhood, all over the country, young, old, married, single, lot of children, grandchildren, everybody comes," he said. "Watching them each grow into their new life is very exciting."

As different as every winner is, Kurland says their stories have common threads that are important to know about should you hit it big.

Signed, sealed, delivered

The first order of business is to sign the ticket. But even that is complicated, and one false move can be costly.

"The back of the ticket needs to be signed, because it's a bearer instrument. God forbid you lose that ticket, and somebody finds it and signs it. It's theirs," Kurland said. "However, every state is different, so depending on what state you live in, you might be able to claim as an entity, and you may be able to keep some anonymity."

Your new team of professionals — which you quietly assembled while resisting the urge to tell the world about your good fortune — can advise you about the best structure to use. You may even be able to have an attorney or trustee sign the ticket and claim the money, allowing you to remain anonymous.

Not every state allows anonymity, however. The Iowa Lottery is among those requiring winners to identify themselves, which officials see as a way to root out potential fraud.

The measure worked in 2011 when fraudster Eddie Tipton tried to use a trust based in Belize to claim a $16.5 million prize.

"Ding – ding – ding! Something is screwy," Iowa Lottery CEO Terry Rich remembers thinking.

Tipton was a supervisor at the Multi-State Lottery Association, which oversees sweepstakes in 36 U.S. states and territories. A computer expert, he had found a way to rig lotteries in five states, claiming $25 million in prizes. Today, he is serving a 25-year prison sentence after pleading guilty last year to fraud.

"I absolutely believe Eddie Tipton would still be doing this today if we would have allowed anonymous winners," Rich told "American Greed."

Assuming you won your lottery prize honestly, and once you have your team in place, your work has only just begun.

Lump sum or annuity?

One of the first decisions you will have to make is whether to take all of your winnings upfront in a lump sum, or take the jackpot in periodic payments — known as an annuity — to you and your heirs. While the lump-sum payment is typically smaller than the advertised prize since you are getting all of the money at once, Kurland says in most cases you should take the smaller sum.

"You can make more money investing it yourself," he said. "And you can make very safe investments, but you'll still make more money than if you take the annuity payments."

There are exceptions, however.

One key consideration is taxes, which is why Kurland urges lottery winners to include a good accountant on their team of professionals.

"You're going to be in the highest tax bracket no matter what," Kurland said. Besides, he notes, your estate will continue to pay taxes on an annuity after you are gone.

But if you believe tax rates are going to go down — and you believe it enough that you are willing to bet potentially millions of dollars — it could make sense to defer the payments by taking the annuity. That way, later payments will be taxed at the lower rate.

Another argument for taking the annuity is that it forces discipline on the winner.

"Once in a while if I see one of my clients is going to spend like a drunken sailor and I don't trust that they're going to be able to safely invest, then I'll say, 'Maybe the annuity is for you,'" Kurland said. "But almost always, I like the lump sum."

At the same time that you are deciding how to take your money, make sure your estate plan is in order, including a will or a trust. If you have been exercising prudent financial planning all along, you already have this in place and your winnings may only necessitate minor changes. But if not, it has never been more important than it is now.

"God forbid something happens," Kurland said. "Even before we claim the ticket, it could be a nightmare with family. So, you need to get a will done, you need to get trusts, you need to get that estate planning in place pretty quickly."

Ready, set, spend?

Now that you have all this new money, it is natural to want to spend some of it. But beware of your impulses.

"Take a deep breath. Wait a few months before you start splurging," Kurland said. "If there's something you really want and it's not even going to put a dent in your wealth, go buy a car, things like that, it's OK. But just don't go over the top."

Kurland says he has seen too many cases of regret on the part of winners who did not think things through.

"People don't realize what everything costs. They're going to buy a $5 million house, but they don't realize what the monthly maintenance on that house is going to be," he said. "They think that they're going to buy a car and it's going to be great, but maybe in two years that car has no more value."

As a new millionaire, you are likely to gain plenty of new "friends," as in people asking for money. Some of those requests will be legitimate, from people you want to help. Others, not so much. Again, this is where your team of professionals comes in.

"What winners need to do is to lean on their lottery lawyer, lean on their wealth managers, and use them as sort of, as the buffer," Kurland said. "We can explain to them the situation and then we can meet with our clients separately and figure out who they want to give their funds to."

Take this job and …

Before you hit the jackpot, when you are merely fantasizing about winning the lottery, the fantasy might include telling your boss once and for all what you think of him. But in reality, Kurland says most of his clients want to keep working.

"It's a constant theme, and something I've really learned to appreciate with them, that they don't want to change who they are," he said.

But he says many winners soon rethink that, and that actually can make good financial sense.

"If you're making a couple of hundred thousand dollars a month, it's important to make sure that that's growing the proper way," he said. "You really don't have time to do that if you're working your regular job eight or nine hours a day."

Above all, Kurland advises his clients to stay calm, even though it is the most outrageous circumstance one can imagine.

"You need to take a deep breath. You need to relax. This is a great thing. Don't freak out. You're going to do it the right way if you hire the right professionals, and this is just a wonderful thing," he said.

See how Eddie Tipton tries to join the ranks of the multimillion-dollar lottery winners by cheating the system. Watch an ALL NEW episode of "American Greed" on Monday, Sept.17 at 10 p.m. ET/PT only on CNBC.