OK, so the three Connecticut money managers who hauled in the $254.2 million Powerball payout know how to invest.
But how is their financial planning?
Based on what the three colleagues from Belpointe LLC, an asset management firm in Greenwich, Conn., announced at a press conference last Monday, they appear to be pretty sharp on that front, too.
The first good decision made by Brandon Lacoff, Greg Skidmore and Tim 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.
SAVING A BUNDLE
For one thing, taking the after-tax lump-sum payment of $103.6 million likely will save them a bundle on taxes, versus the 30-year annuity stream that 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 dies young.
Had they chosen the annuity stream and one them died next year, that winner's heirs would be on the hook for estate taxes of 35% on the present value of those future annuity payments. But the heirs would have access only to the current year's payment to foot the bill for the entire sum.
More than likely, the heirs would have had 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,” Mr. Aulino said.
The three winners also likely saved a bundle in estate taxes by putting the money in a trust that they formed. 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 fails to act, the exemption will revert to $1 million at the end of next year, and the estate tax rate will jump to 55%.
Mr. Kurland didn't return calls seeking comment.
Belpointe is registered as an investment adviser with the Securities and Exchange Commission. Its most recent filing indicated that it manages $82 million.
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 development downtown.
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.
MISSED OPPORTUNITY
Of course, if the trio were really on the ball, they would have set up a trust beforehand and put the lottery ticket into it then. That way, they could argue that the amount put into trust was $1, and the winnings were free from estate taxes.
Then again, the cost of setting up a trust might seem high, given the odds of winning. And the Internal Revenue Service might have something to say about such a strategy.
(This story was supplemented with reporting from Bloomberg.)
aosterland@investmentnews.com
