Being a millionaire means that life becomes a bed of roses, or so one usually assumes. But for Derek and Elaine Thomson - who won pounds 2.7m on the National Lottery some two years ago - it can sometimes mean exchanging one set of problems for another.

Sure, the problems are of the nice variety, but they can be ones the typical lottery winner has little experience of - for example, how to invest a large capital sum, how to protect it and how to pass it on to future generations.

Derek and Elaine have two children - a daughter aged 13 and a son of 8. Derek, a qualified accountant who operated at general management level, continued to work at Motorola for two years following the lottery win but has now retired.

Following his "retirement" he and his wife decided to set up their own business. They have invested pounds 500,000 into four holiday properties which will generate an anticipated income of pounds 50,000 per annum.

They also gifted pounds 400,000 to family members, including pounds 250,000 into an "accumulation and maintenance trust" for their two children. This is where the trust deeds specify that the main beneficiaries are under 25 but will be entitled to an "interest in possession" no later than then.

The trustees have discretion to pay or accumulate income as long as the beneficiaries are minors. No "periodic charges" (of 6 per cent every 10 years) over the nil rate band are payable. Nor is inheritance tax (also known as the "exit charge") payable if Derek and Elaine should die.

An inheritance tax protection policy was effected on a last-survivor basis to provide pounds 500,000 to meet the IHT liabilities. Approximately pounds 800,000 is invested in stocks and shares managed by a leading fund management group and pounds 100,000 is split between cash, PEPs and Tessas. The initial investments were geared towards capital growth but they now require pounds 30,000 per annum (gross) from the portfolio.

The adviser: Brian Aitchison, managing director of The Aitchison & Colegrave Group, independent financial advisers, with offices in Glasgow, London, Edinburgh and Aberdeen (0800 838920).

The advice: Having retired early, Derek and Elaine Thomson have taken the sensible step of putting their money to work effectively. They have to be congratulated on both their win and also the prudent manner in which they have diversified their assets in a reasonably tax-efficient manner. Having set up a new business, made family gifts and established a trust for their children, substantial funds remained available for investment.

However, to put this into context, it represents no more than Mr Thomson's earning capacity had he continued working until age 60. If we assume that somebody with his qualifications and experience could command a net income of pounds 40,000, increasing at 3 per cent a year, the total earnings potential would be pounds 1,092,236. Moreover, there could be pension rights worth in excess of pounds 1m (assuming a final salary scheme).

The Thomsons' enterprise in the leisure industry may well be rewarding. However, this sector is usually the first to feel the cold wind of any recession. It is unlikely that the income will be "pensionable", as it arises from rental income and is regarded as investment income. However, if a genuine trade can be established then pension planning opportunities exist and either a personal pension or an executive pension plan could be established with the consequent tax-planning benefits.

Certainly pounds 30,000 of gross income could be generated from the portfolio managed by Flemings (however, it is difficult to comment on the construction as this information was unavailable). Greater emphasis on Gilts, fixed- interest stocks and corporate bonds could provide more income.

Another, more tax-efficient idea would be to take out a series of zero dividend preference stocks with varying maturity dates, to generate income with relatively low risk. Clearly, each decision should be considered on investment merits first and thereafter tax efficiency. As pounds 30,000 represents only 3.75 per cent of the portfolio amount, it should be easily achieved.

The portfolio should be spread between various classes of asset, such as equities, bonds and also by geographical region to reduce the risk through diversification. The spread between assets and individual funds or shares should then be monitored and managed in response to changing market and economic circumstances.

Currently, our preference is for western markets and we would tend to avoid some of the more speculative areas.

Generally, few investors have the time, inclination or expertise to manage funds and the Thomsons have taken the sensible step of appointing a fund manager to carry out discretionary management. But it can make sense to appoint an independent financial adviser to take a more holistic approach to financial planning and also take an objective third-party view on performance.

By perhaps incorporating various tax-efficient investment vehicles, including offshore single premium bonds, offshore roll-up funds and selected unit trusts and investment trusts (to gain international exposure) this could reduce the amount of income tax paid.

In a portfolio of this scale, capital gains tax (CGT) is almost inevitable. Venture capital trusts can play a useful role in sheltering gains. These provide 40 per cent capital gains tax reinvestment relief, with 20 per cent income tax relief and the prospect of tax-free dividends and capital gains, although the risk/reward should be carefully considered.

Although the accumulation and maintenance trust is appropriate for their two children, one significant disadvantage of such trusts is the rate of 34 per cent tax charged on both income and gains. Holding the assets in more tax-efficient offshore investment bonds and low-yielding unit trusts should at least be considered.

While the Thomsons have taken the sensible step of effecting a funding policy to cover inheritance tax, this does not actually reduce the amount of tax paid.

Lastly, "will strategy" is important and the Thomsons have wisely revised their wills to utilise fully the "nil rate band" allowance to which each is entitled, saving pounds 89,000 in inheritance tax. Obviously, Derek and Elaine are too young to part with further capital, thereby losing both control and the arising income.

But there are ways of reducing the liability whilst simultaneously retaining (or even increasing) income - and control of capital. In short, having your cake and eating it too! Schemes such as "retained interest trusts", "gift and loan" and "discounted gift" schemes should be explored.