if i had a million dollars

On HGTV last night, we watched a woman shopping around for her new $1.6 million home. That got me thinking about the age-old fantasy: "If I won a million dollars, what would I do with it?" Keeping in mind the odds of winning a million are 1 in 175,711,536, I decided to waste a few moments thinking about how we could spend our newfound riches.
First off, before actually claiming the winning ticket, I'd hire an attorney. Aside from needing assistance in terms of the tax implications, I want to talk about creating legal entities for use as a) tax shelters, and b) ways to mask our identities and keep us out of the public eye, as the names and addresses of lottery winners are made public. Instead of leading folks to our doorstep, I'd rather create a trust with a PO Box address. A trust would also avoid probate of the lottery proceeds upon death of the winner and minimize taxes on the estate.
Secondly, I'd take the lump sum. It would really suck to take the 20-year payout option, only to see it withered away by taxes...or, worse yet, have one of us pass away before it is paid out.
Next, I expect to lose almost half of the million to taxes. You don't get any capital gains rate break for lottery winnings, nor is there any income averaging to help lower your tax bill. If you win more than $5,000 in the lottery, 28% must be withheld from your winnings for federal income tax purposes. This means: Initial Winnings ($1,000,000), less Federal Taxes ($720,000), less State Taxes...leaves the balance of the winnings at approximately $676,800...minus attorney fees...I'll round it off to an even $600,000.
My first thought is "How do we invest this money so we can quit our jobs and live off the interest?" The answer, surprisingly, is we can't. Let's assume we invest this money, divided 50-50 between a diversified portfolio of stocks and a diversified group of bonds. The S&P's 500 index currently yields less than 2 percent a year. But let's assume we find someplace with a 2% yield. The stock portion of the portfolio will throw off about $6,000 in income the first year. As for the bond portion, a reasonable estimate is a 5% per year yield...so $15,000.
Together, the first year interest on our winnings is $21,000. That leaves our interest only income at just $1,750/month. So much for THAT idea; looks like we're keeping our day jobs. (As a comparison, the Ohio unemployment compensation rate is between $365 - $493 per week...or $1,460 - $1,972/month.)
Instead, let's just have some fun and infuse the economy with that $600,000! Holding back $200,000 (because we have to save SOME of the money, right?), we have $400,000 to play with. To begin with, we'll pay off most of the mortgage (don't want to pay off all of the mortgage because of the tax benefits), then take care of the rest of our debts. From there, we can spread a little love around to the rest of the family. A lottery winner can make a gift of some of the lottery winnings up to the annual exclusion limit of $12,000 without incurring gift tax liability. If we give $11,999 to each of our respective families, that means $83,993.
And just like that, our $1,000,000 is down to $146,000.

Now, at long last, onto the fun part! This is the money we use on frivolity: new cars, traveling to England, Scotland, Italy, California, Alaska, Wyoming, Australia, etc.; donating to charities, creating scholarship funds, buying a monkey (haven't you always wanted a monkey?). Plus, we wouldn't have to eat Kraft Dinner...but we would eat Kraft Dinner...we'd just eat more.

We're ready! Bring on that winning ticket!