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Should You Form an LLC to Claim Lottery Winnings?

A blond man standing next to a large stack of dollar bills and gold coins, holding a document that says "LLC," encased in a bubble.

While most of us fantasize about what we’d buy if we won Power Ball or Mega Millions—a fancy car, private island, or a swimming pool full of Oreos—we don’t often think about the publicity we’d receive, or the steps we’d take to protect our privacy. While some states, like Delaware, Wyoming, Kansas, and Mississippi, allow lottery winners to claim their prize anonymously, most states require that lottery winners be publicly named. That much money and publicity tends to attract scammers who are looking to get their hands on your cash. Lottery winners may also face legal challenges from people who claim they are entitled to a share of the prize. Forming an LLC is one way winners can protect their winnings and privacy. Whether you’re a lottery winner or just dream about being one, we’ll show you what an LLC can do to protect your assets and your privacy.

Why Use an LLC for Lottery Winnings?

A limited liability company (LLC) is a legal entity formed with the state that creates formal separation between the owner(s) and the LLC itself. An LLC’s assets are legally separate from the personal assets of the owner. Because LLCs have their own separate legal identity (like a corporation), lottery winners, who all of a sudden find themselves thrust into the public eye, can in some cases, shield their private information, and their assets, by forming an LLC. Here are some examples:

Maintain Privacy

Nine states (and Washington DC) allow LLCs to collect lottery winnings. If you live in a state where LLCs aren’t required to publicly list the names of their members, then when you collect your winnings under an LLC, your name won’t appear on public records. This will make it harder for any potential scammers or long-lost family members to get their hands on your information in an effort to claim a piece of your riches.

Learn more about how an LLC can help you live privately.

Divide Lottery Winnings

Not all lottery winners fly solo. Lottery winnings that involve more than one winner can lead to interpersonal conflicts if not managed properly. Imagine an office lottery pool with multiple players. Dividing the winnings can be legally tricky. Forming a multi-member LLC after winning the lottery will allow the winners to establish clear guidelines for how the money will be distributed. Whether it’s a one-time lump-sum distribution, periodic payouts, or a combination of both, an iron-clad operating agreement can outline the distribution plan to avoid misunderstandings and disputes.

Buy Your Dream Home

Many lottery winners splurge on a house (or ten). When you purchase real estate without an LLC, your name typically goes on the title of the property. This means that just about anyone can view your property and who owns it. All they need to do is search online through the local county assessor’s office. When you use an LLC to buy real estate, your LLC’s name takes over the title of the property. This will act as a legal smoke screen for anyone who wants to do some digging on the new lottery winner. Instead of finding your name, they’ll get the name of your LLC.

Want to learn more? Check out our page on Buying a House With an LLC.

Purchase a Car

Got your eye on the new Lamborghini Hurracan? As a person of new wealth, you might want to consider using an LLC to buy that car. When you buy a car using an LLC, you’ll be able to list your LLC’s information instead of your personal information on the vehicle title, dealer warranty, and other legal documents. If anyone tries to search for the vehicle’s owner, they won’t find your personal information, just your LLC. Furthermore, if you were to get into an accident, your LLC’s liability protection can prevent you from being personally liable for legal or medical fees.

What States Allow LLCs to Collect Lottery Winnings?

State lottery laws can change, but as of 2023, these 10 jurisdictions allow lottery winnings to be claimed by an LLC:

  • California
  • Colorado
  • Connecticut
  • DC
  • Florida
  • Indiana
  • Nebraska
  • New York
  • Oklahoma
  • Washington State

For high-dollar lottery winners, there’s no single answer to what you should do after your windfall. An LLC is just one tool that you can use to protect your assets and maintain your privacy. It’s also a good idea to hire an attorney and accountant to help you navigate the pitfalls (and joys) of your new millions.

Whether your big dream is winning the Power Ball or opening your own business, Northwest has resources that can help. Sign up for a free account to access our entire legal forms library—every state form you need to start and maintain a business in the US.

This entry was posted in Opinion.