You hear about the Mega Millions Jackpot reaching 300 million dollars. The Powerball is 400 million dollars. Everyone in the world buys at least a “quick pick.” Hoping. . . . But the big question is what happens if you win? If you take the money (often paid out over 20 years), when all is said and done, your tax will be about 50%. Or more. So you win 300 million smackers — the feds and your state will karate chop your hand before you get a nickel. And then anything you earn on the retained amount is taxed like there is no tomorrow. . . .
I have a theory. Let’s say you win $300 million. You pick your 5 or 10 favorite charities: Salvation Army; Red Cross; Augustana College; the Boy Scouts of America; Misericordia; and so on. And you belly up and tell them “Look. Here’s the deal. You agree between you to split the $300 million. You pay no tax because – voila – it’s all charitable income.” And you hand them the winning ticket. Those charities will be on this like a football player jumps on a fumble. But what about you?
You tell the charities that their ownership of the winning ticket (don’t call it a “gift”) is informally conditioned on them providing you each year with a stipend (perhaps the max you can give an individual without tax consequence). This amount can be paid each year to yourself, your spouse, children, etc. It’s way more than enough to incentivize the charities. The IRS will bite its knuckles and the state(s) will growl. But who knows? It might just work. Everybody wins. 🙂 Accountants I’ve spoken to suggest that such an arrangement would be challenged. But ain’t it worth the try? I like this. All the money is used for charitable purpose instead of paying off debt to China or paying the salaries of bureaucrats. I look forward to considering this when I win the Lottery. Again.