Coming Into Money?
2 Crippling Risks and 3 Things You MUST Know
You’ve recently discovered that a significant amount of money is on its way to you, or might even be sitting right now in your bank account. Maybe it’s coming from an inheritance, or else it could be something like a lottery win or insurance payout.
Most people might think it’s exciting, but you’re realizing you’ve got some mixed feelings about it. It’s pretty common to be happy and relieved that you now have more money, and to be stressed out or worried about how you’re going to handle it, too.
You’ve got choices that you probably didn’t have before to make positive changes to your finances. If you’re like many Americans, you’ve got debt of some kind. Should you pay off all or a portion of it? If you have kids, should all or a portion be set aside for college in some way?
Or instead, maybe this is the time to buy the larger house you’ve always wanted. Launch your own business and stop working for “the man.” Travel the world. Take a work break for a little while.
Money that comes in suddenly is often spent, seemingly, just as suddenly. But you don’t want to lose all the money you’ve just come into. Fortunately, you can plan how to work with your windfall without spending it all right away. By avoiding the mistakes that others make and choosing the right options, you have the chance to make dreams come true.
But what are those options and what are the mistakes that lead to all that money slipping right through your fingers? The challenge you’re now struggling with is that you don’t know what you don’t know. The causes of sudden wealth are generally pretty similar. But the right way to handle it varies from recipient to recipient, according to your own circumstances, desires, and needs.
Although there is plenty of DIY (do it yourself) money management advice available, protecting and preserving sudden wealth is often more complex. How to invest the money depends on your particular circumstances, the goals you want to fund, and your tolerance for risk.
One size does not fit all when it comes to managing a windfall! Asking people who don’t have experience with this kind of money management could lead to disaster. In addition to money management, you need to manage expectations, including your own.
Taking all the obvious (and not so obvious) factors into consideration is the key to developing a strong strategy. Without knowing all the factors in play, you could end up making the wrong (and potentially expensive) decision.
If you’re trying to figure out how to handle your sudden wealth wisely, then you’ve come to the right place.
This guide is created especially for people like you who have recently come into significant funds, to help you determine what the right questions are, so that you can find the right answers for your specific lifestyle and ambitions.
It will help you highlight the risks that could bankrupt your future, and develop a strategy to enjoy your newfound wealth as well.
As the recent recipient of a sudden windfall, you may be asking yourself questions such as:
- What choices are available to me, and what are their consequences?
- How do I prevent the money from damaging my future and my relationships?
- Will there be enough left after taxes to fully fund my dreams?
- What should I invest the money in?
- Who can I trust to help me manage this money?
If any of these questions seem familiar, keep reading…
Crippling Risk #1
Unexpectedly High Taxes
To paraphrase George Carlin, Uncle Sam loves you, and he needs money! Taxes are often confusing enough, never mind adding a significant amount of money into the mix. You’re probably already aware that you’ll need to pay taxes, but how much should you plan for?
Federal income taxes are usually not an issue for someone who inherits money. However, some states do levy taxes on inheritances, so it depends on where you live. Similarly, some states will withhold state tax on lottery winnings and others don’t. However, you usually need to report it as income on your federal income tax return. Insurance payouts depend on the type of insurance. Settlements from a lawsuit are often taxable income, though it depends on the type of lawsuit and your personal situation.
Not only do your taxes depend on what type of windfall you’re benefiting from, they may also depend on when you take the distribution. In some cases, you may not have a choice in how the money is distributed to you; you will receive a lump sum or regular payouts over a period of time. But in other cases, you may have options in how you take the funds.
Think objectively about what the personal results are of taking a lump sum versus a structured payout. If you have a spendthrift in your family, will the lump sum be too tempting to spend? Or will you be able to invest it wisely without taking money out periodically to allow for potential growth?
Your tax issues also depend on where the money is coming from. As you can see, the tax ramifications of your sudden wealth can be more complex than you might originally have thought.
Critical questions to help you manage your risk include:
- Can I choose how the money is distributed to me (to reduce the tax consequences)?
- How much should I expect to pay in taxes right away, all-in between federal, state, and local if applicable?
- Will I owe taxes later on, down the line?
- Have I considered the effects on my family of the different payout options?
- What is my strategy to preserve the money that remains after taxes and expenses?
- Do I have a financial professional who can guide me on navigating the effects of my decisions?
Crippling Risk #2
Damaging Family Relationships
Sometimes when a family member comes into money, other members of the family start lining up with their hands out. Or they resent the newly wealthy person. You may even know someone whose money caused a big rift in their relationships, and you don’t want the same thing to happen to you and your loved ones.
You may be thinking about spreading the joy around, but what happens if you give to some people and others get none? What if you’d rather keep it all for the benefit of you and your immediate household, will other family members resent it?
People who suddenly receive significant amounts of money don’t always know where and when the ground will shift under their feet when it comes to family. You may believe that everyone will be happy for you, and later find out that’s not the case. There may be fault lines in your relationships that could crack under the pressure of your newfound wealth, if you don’t handle them in the right way.
Critical questions to help you manage your risk include:
- Am I aware of the financial consequences, including gift taxes, if I give to others?
- How will this money affect my relationships?
- Do I have a financial professional who understands my circumstances, who can help me make good decisions that help me maintain my relationships?
MUST-KNOW #1
Money Can Be a Double-Edged Sword
A significant amount of money has the power to allow you to live your dreams. It could be the seed money you need to leave your corporate job and ride out on your own. Or you may finally have the money you need to enjoy an interest that you couldn’t indulge while you worked full-time.
By creating a wise strategy and making smart choices, a future that you’ve always wanted — but never thought you could live — could be within your reach.
On the other hand, you could very well end up worse off than before. So many sudden money lottery winners go bankrupt after receiving their windfall.4 Sometimes the urge to buy things you couldn’t afford before takes over, and as a result, there’s not much left for investing or for the future. It’s easy to think the money will last forever, but if you don’t take care of it, it won’t.
Your newfound wealth might be the opportunity of a lifetime. But you’ll need to learn how to manage it. Otherwise, it could slip through your fingers.
Critical questions whose answers you must know include:
- What dreams does this money put within my reach?
- Am I being realistic about how much I can spend without running out of money?
- Do I know what the financial effects of my dream might be?
- Do I have a financial professional who can show me the financial consequences of changing my life?
MUST-KNOW #2
A Lasting Legacy Can Be Yours…
If the Strategy Is Right
You may prefer to make a positive impact on the world with a portion (or all) of your newfound wealth. Charities, successive generations, educational institutions, and other groups can benefit from significant donations. You may also feel compelled to be a good steward of the money for a variety of reasons, and that’s another way to leave your mark.
Most importantly, you want to use the funds as tax-efficiently as possible. That way there’s more left for your legacy. The right techniques depend on several factors, including how you want to be remembered and whether you’ll want to have access to the money during your lifetime.
Critical questions whose answers you must know include:
- What do I want my legacy to be?
- Who and what do I want to benefit with this money?
- Am I aware of the most tax-efficient method for achieving my legacy goal?
- Is there a financial professional I know who can guide me through these options and maximize the value of my gifts?
MUST-KNOW #3
New-To-You Asset Protection Strategies
Your sudden windfall can potentially help you protect your other assets and your family as well. There are a number of asset protection strategies for the wealthy that you may not have had access to before. They require a certain level of investment that you may now have.
Simply having your assets in your own name may no longer be a good solution. Smart estate planning is critical, and just like investments, cookie-cutter solutions will not work. Estate plans and other asset preservation techniques are very specific to your circumstances and desires.
Critical questions whose answers you must know include:
- How can I preserve and help protect all my assets, including this more recent wealth?
- What options are available to me at my new, advanced financial level?
- Do I have a trusted professional who understands my needs and how to protect my family and my assets?
You Don’t Have To Make These Critical Choices Alone
Suddenly coming into a sizable amount of money has the potential to change your life. Whether the impact is positive or negative is mostly the result of the choices you make. However, there is a way to use this money to help you build a lasting and solid financial foundation for you and your family.
You may be able to fund dreams or goals that you previously thought were too far away to reach. The options you choose in taking the payout and planning your investment strategies determine whether you make your dreams come true. Poor choices can deplete your funds before you even have a chance to enjoy them.
Understanding the risks and effects of all the moves you make with your newfound money is critical. Not only does this money have the potential to change your life, but potentially that of your family and later generations, too. That’s why it’s so important to develop a strategy and understand all the possible outcomes of your plan.
The sooner you shore up your strategy, the better. Some aspects of implementing your choices are time-sensitive, and taking action can help prevent the money from being squandered. Unfortunately, these things aren’t taught in high school or college!
Our trained professionals have the specific education and experience to know what you don’t. Rather than provide a cookie-cutter solution, we tailor your strategy to your own specific circumstances. Book your customized and free Sudden Wealth Session today so you can start moving toward your dreams.
We’ll help you sort through the complexities of sudden wealth, and help you avoid the mistakes that have resulted in others in similar situations losing too much money. You’ll discover tax-efficient ways to preserve your wealth and potentially leave a legacy. We’re professionals who understand how fault lines can suddenly appear in relationships, and help you prevent them from cracking.
You’ve already made the first smart decision to read through this guide. The next wise step is to contact us to book your free Sudden Wealth Session.
