Last week, we blogged about two Powerball winners “forced” to split a grand prize of nearly $1.8 billion. Assuming they each choose the lump sum option, as almost all winners of large sums do, they will need to manage a level of wealth unimaginable to most Americans. Unless either winner has an unusually extensive background in finance and investing, this means they will be starting from scratch (pun intended). Lots of “scratch” involved here, to be sure.

In last week’s post, we elucidated the need for personal safety for lottery winners. Today, we discuss the monetary and investing aspects of Sudden Wealth.

Media reporting on winners is designed to attract a large audience, looking for computer clicks and web page headlines. Media hustlers are determined to garner maximum attention, so they report the largest numbers possible. In real life, after taking the lump sum option, $1.8 billion is more like $820 million.

Taxes come next, imposing a 37% Federal Income Tax Rate. Note that only 24% will be withheld prior to receiving the winnings, with the balance due in cash the following year’s April 15^th. Both will pay “Obama Care Tax,” and both will be subject to large IRMAA (Income-Related Monthly Adjustment Amounts) surcharges (for life, unless they blow the windfall).

From the Missouri winner will be extracted State Income Tax, where the maximum tax rate is 5%, and applies to the actual winnings of $410 Million. That depletes the winning prize by another $20.5 million or so. Of course, what’s left is still impressive.

Net winnings must be protected and invested. In all likelihood, new winners will not have a pre-established safe place for their funds to be electronically transferred and will need to make provisions prior to claiming their winnings. Before opening any accounts, owners must exercise due diligence to discover what degree of protection is afforded by the receiving institutions.

For reference, the Federal Deposit Insurance Corporation (FDIC) insures only $250,000 per account. Bottom line – winners need professionals, working with large financial organizations, to ensure that funds will be protected.

Once funds are safely deposited, a few suggestions from our experience may prove insightful. First, pay all your own bills, which is an easy way to track your spending. Next, don’t throw huge investment money into the market all at once. Develop and implement an investment plan and procedure that is time-phased.

Above all else, ignore the “noise” from your family and “friends.” You don’t owe a penny to anyone, except for pre-existing debt. Be nice, not stupid.

If you ask members of America’s wealthiest families how to remain wealthy for generations, most will mention one simple and profound guideline – Don’t spend the principle. My recent Internet search on “lottery winners who went broke” yielded 1,380,000 results. Don’t make it 1,380,001.