Podcast Summary: How Tax Works

Episode 37 – If You Win the Lottery, the First Thing You Should Do Is… Call a Tax Lawyer?

Host: Matthew Foreman, Falcon Rappaport & Berkman LLP
Release Date: October 14, 2025

EPISODE OVERVIEW

In this episode, host Matthew Foreman tackles the age-old question: “If you win the lottery, should your first call be to a tax attorney?” By weaving old family anecdotes, practical math, and a deep dive into tax tools and estate planning, Matt demystifies what really matters for the suddenly ultra-wealthy. The episode ultimately centers on the practical (and sometimes psychological) realities of managing a massive windfall, with an emphasis on smart planning rather than just tax maneuvering.

KEY DISCUSSION POINTS & INSIGHTS

1. The Prompt: Why Call a Tax Lawyer First? (01:45 – 09:18)

• The Origin of the Episode:
  Matt shares that the topic came up at a family birthday party when his cousin asked, “If you win the lottery, is your first call really to a tax attorney?”

  “And I had no answer. I was somewhat dumbfounded. And anyone who knows me knows that I'm rarely dumbfounded, or I should say often dumbfounded, rarely without words.” (03:30)

• Immediate Answer:
  Matt reveals he’d probably call an estate planner or wealth manager first, not necessarily a tax attorney.

• Lump sum vs. Annuity:
  Matt’s office colleague raised the universally debated question: Lump sum or annuity payout? His quick answer is “lump sum — and I’ll explain why.”

2. Real-Life Lottery Cautionary Tale (09:18 – 14:35)

• Matt’s Childhood Story:
  Recounts a family acquaintance who won $2.5 million in the late ’80s, blew through it all in six months, and ended up asking for her job back.

  “She spent basically 30 years of her salary, maybe more, maybe less...in six months, which is sort of amazing.” (12:15)

• The Takeaway:
  The most common pitfall isn’t tax inefficiency, but lack of budgeting and sudden access to excessive cash.

3. What Can You REALLY Do for Taxes? (14:35 – 16:53)

• Income Tax Perspective:
  Not much can be done to reduce the basic tax bill. Most actions happen on the estate or gifting side, not income tax.

• Gift and Estate Planning:

  “A lot of people, when they say a tax attorney, you know, they include trust and estates attorneys...most people don’t need to worry about taxes.”

4. Lump Sum vs. Annuity: The Numbers (16:53 – 21:10)

• How the Payouts Work:
  $1.8 billion over 30 years, or lump sum of $826 million.
  The annuity increases by 5% each year — “not a tremendous rate,” according to Matt.

• Math Breakdown:
  Lump sum after taxes (~45%): ~$450 million. Annuity can end up around $990 million, but accounting for the time-value of money and investing, the lump sum can actually end up ahead.

  “$454 million is an amount of money you probably can’t spend unless you’re trying to spend it, spending for spending’s sake…” (21:00)

5. Why Tax Maneuvers Are Limited, and When They Happen (21:10 – 26:13)

• Actual vs. Constructive Receipt:
  By the time you’re holding a winning ticket, the IRS counts it as income — you can’t delay the income or gift it away pre-tax.

• State Tax Complications:
  Winnings can be taxed in multiple states if you live in one and buy the ticket in another.

• Fantasy Planning:
  Buying tickets into a trust a year beforehand could, theoretically, shift the windfall, but the IRS values the gift at fair market (i.e., $2 at purchase), so it doesn’t really work.

6. Estate Planning for Lottery Winners (26:13 – 31:33)

• Why Trusts Matter:
  Putting the money in trust removes personal access and protects from impulsive spending or outside claims.

• Types of Trusts – What Works and What Doesn’t:

  • Grantor Trust:
    Simplifies administration but doesn't reduce taxation.
  • QTIP Trust:
    Useful for spousal arrangements but doesn't avoid estate tax at the second death.
  • Intentionally Defective Grantor Trust (IDGT):
    Complex and not very effective with cash windfalls, could trigger gift tax.

7. Charitable Planning: CRTs and CLTs (31:33 – 42:20)

• Charitable Remainder Trusts (CRT):

  • Types: Charitable Remainder Annuity Trust (CRAT) & Charitable Remainder Unitrust (CRUT)
  • When Useful: Best for appreciated assets, not sudden cash.
  • Notable Quote:

    “CRTs, CRATs and CRUTs are not taxpayers…they’re nonprofits basically, so that it’s ordinary income for the payments when they receive.” (36:16)

  • Sub-Flavors: NIMCRUT, FLIP NIMCRUT, and others.

• Charitable Lead Trusts (CLT):

  • Types: Charitable Lead Annuity Trust (CLAT) & Charitable Lead Unitrust (CLUT)
  • Benefit: Discounts the value subject to estate/gift tax.
  • Timing: More effective before appreciation or with assets likely to exceed IRS discount rates.

• Practical Guidance:
  These strategies work best when done before the “capital event” — not after winning.

• Acronym Soup Moment:

  “So far we've gone to Kratz, Kruts, Klats and Klutz, which sounds like someone walking on a marble floor wearing tap shoes.” (40:00)

8. Grantor Retained Trusts (GRTs): When & How They Work (42:20 – 47:55)

• Grantor Retained Annuity Trust (GRAT) and Grantor Retained Unitrust (GRUT): Used by ultra-wealthy families (Waltons cited as an example) to transfer appreciated assets outside the estate with little to no gift tax.

  “Zeroed out GRAT is what many wealthy families do when they have income-producing assets. Altons use them pretty heavily…there’s litigation that is public record on these.” (44:26)

• Downside:
  No step-up in basis at death, but usually less of a concern for the massively wealthy.

• GRITs:
  Rare, used for non-close relatives. Matt notes he's never actually seen one in practice.

9. Lottery Winnings: It's About More Than Tax (47:55 – 52:30)

• Key Takeaway:
  The real challenge is wealth preservation and responsible management, not just parsing tax law.

  “This episode is not really about winning the lottery. Winning lottery is really about estate planning, wealth management, preservation, asset protection. From an income tax perspective, winning the lottery is not terribly interesting…” (49:35)

• Advice:
  Charitable structures (CRTs, CLTs) if you’re philanthropic; zeroed-out GRATs for generational transfers; mix and match for personal fit; beware of trying to engineer last-minute tricks.

10. Memorable Closing & Life Advice (52:30 – END)

• Personal Bucket List:

  “If you win the lottery, please let me know because I have some ideas for some things I've always wanted to do. Number one on my list is have a party in the Whale Room at the American Museum of Natural History on the Upper West Side of Manhattan…” (53:10)

• Final Life Perspective:

  “Life is short, as we all know and far too often reminded. So let's have some fun. Let's have a party.” (54:10)

NOTABLE QUOTES

| Timestamp | Quote | Speaker | | --------- | ----- | ------- | | 03:30 | “And I had no answer. I was somewhat dumbfounded. And anyone who knows me knows that I'm rarely dumbfounded…” | Matt Foreman | | 12:15 | “She spent basically 30 years of her salary, maybe more, maybe less...in six months, which is sort of amazing.” | Matt Foreman | | 21:00 | “$454 million is an amount of money you probably can’t spend unless you’re trying to spend it, spending for spending’s sake…” | Matt Foreman | | 36:16 | “CRTs, CRATs and CRUTs are not taxpayers…they’re nonprofits basically, so that it’s ordinary income for the payments when they receive.” | Matt Foreman | | 40:00 | “So far we've gone to Kratz, Kruts, Klats and Klutz, which sounds like someone walking on a marble floor wearing tap shoes.” | Matt Foreman | | 44:26 | “Zeroed out GRAT is what many wealthy families do when they have income producing assets. Altons use them pretty heavily…” | Matt Foreman | | 49:35 | “Winning lottery is really about estate planning, wealth management, preservation, asset protection…From an income tax perspective…not terribly interesting.” | Matt Foreman | | 53:10 | “If you win the lottery, please let me know because I have some ideas…Number one on my list is have a party in the Whale Room at the American Museum of Natural History…” | Matt Foreman | | 54:10 | “Life is short, as we all know and far too often reminded. So let's have some fun. Let's have a party.” | Matt Foreman |

TIMESTAMPS FOR IMPORTANT SEGMENTS

| Segment | Topic | Timestamp | | ------- | ----- | --------- | | Introduction & premise | Why call a tax lawyer first? | 01:45 | | Cautionary tale | Lottery winner burns through money | 09:18 | | Lump sum vs. annuity math | Payout comparisons | 16:53 | | What planning works (and what doesn’t) | Actual vs. constructive receipt, trust basics | 21:10 | | Charitable trust structures | CRTs, CLTs, nuances | 31:33 | | Grantor retained trusts | GRATs, generational planning | 42:20 | | Key takeaways & life advice | Pragmatic, personal guidance | 47:55 - End |

SUMMARY

This episode serves as a guide for anyone dreaming of, or perhaps one day facing, a life-changing lottery win. Host Matt Foreman explains that while the tax bill is basically unavoidable, the biggest dangers are mismanagement and failing to plan for the future. The most practical advice is to set up solid estate structures—using trusts tailored for protection, gifting, and charitable giving—and surround yourself with professional advisors. For massive sudden wealth, calling the right experts (not just a “tax lawyer”) is crucial, but so is taking time to think and plan. In Matt’s words: “Life is short…let’s have some fun”—but do the smart financial stuff first.