OK, so the three Connecticut money managers who hauled in the $254 million Powerball payout know how to invest. But how's their
financial planning?
Based on what the three colleagues from Belpointe LLC, an asset management firm in Greenwich, Conn., announced at a press conference on Monday, they appear to be pretty sharp on that front, too.
The first good decision taken by Greg Skidmore, Brandon Lacoff and Timothy Davidson — who bought the $1 lottery ticket at a Stamford, Conn., gas station — was to take a lump sum payment rather than a 30-year annuity stream, said Charles Aulino, director of
financial planning at Glenmede Trust Co.
For one thing, taking the after-tax lump sum payment of $103.6 million will likely save them a bundle on taxes versus the 30 year annuity stream they could have received. “As it currently stands, the top marginal tax rate of 35% will revert to 39.6% at the end of 2012 if Congress does nothing,” said Mr. Aulino, who specializes in
estate planning. And based on their recent track record, Democrats and Republicans in Congress are unlikely to agree to anything major on the tax front. The additional 4.6% tax represents big money on an amount this large.
The three men also may have saved their heirs major headaches if one of the winners were to die at a young age. Had they chosen the annuity stream and one of the lucky trio was to die next year, the heirs of that winner would be on the hook for estate taxes of 35% on the present value of those future annuity payments. But the heirs would only have access to the current year's payment to foot the bill for entire amount.
More than likely, the heirs would have to agree to a factoring arrangement — on typically lousy terms — with a bank or financial company to cover the taxes. “The annuity stream option is a risk to heirs and can put them in a peculiar bind,” said Mr. Aulino.
The three winners also likely saved a bundle in estate taxes by putting the money in a
trust they formed to manage the money. Reportedly, the
trust is called the Putnam Avenue Family Trust. The men's attorney, Jason Kurland, told the New York Post that they plan to give a “significant portion” of their winnings to charity.
They can deduct up to $50 million of those charitable gifts for tax purposes. They will pay gift/estate taxes on the money they put into
trust but can take advantage of the current $5 million exemption ($10 million if they are married,) and pay 35% on the amount over that threshold.
Again, if Congress does nothing, the exemption will revert to $1 million at the end of 2012, and the estate tax rate will jump to 55%. Mr. Kurland did not return calls seeking comment.
Belpointe is registered as an investment adviser with the Securities and Exchange Commission. It's most recent filing with the SEC indicated that it manages $82 million.
Bloomberg News reported that, Mr. Lacoff, a former Ernst & Young LLP employee, co-founded the predecessor to Belpointe in 1999. The asset management firm is best known for its development of Beacon Hill of Greenwich, a luxury town home development in downtown Greenwich.
Mr. Skidmore is listed as president and chief investment officer for Belpointe Asset Management. Mr. Davidson, a senior portfolio manager, started in finance in 1979 as a foreign-exchange trader, according to the Belpointe website.
Of course, if the Belpointe money managers were really on top of their game, they would have set up a
trust beforehand and put the lottery ticket into it prior to the drawing. If they had done that, they could argue that the amount put into
trust was $1, and the winnings would not be subject to estate taxes. “They could set up a
trust one time and keep buying lottery tickets to put into it, said Mr. Aulino.
Then again, the cost of setting up a
trust might seem foolish given the odds of winning a lottery. What's more, the IRS might have something to say about such a strategy.
(This story was supplemented with reporting from Bloomberg)
