An educated Advisor you can count on

West Coast Phone: 949-226-8342
East Coast Phone: 732-226-3113


Inheritance, Lottery Winnings & Financial Windfalls

Receiving a significant sum of money and/or assets from an inheritance, winning a lottery, or any other financial windfall can bring along with it a number of financial challenges. Most people that are not used to having a lot of money don't quite know what to do with it when they get it. There are so many questions such as tax impact, what should be paid off, and what can be purchased?

Unfortunately for many, receiving a financial windfall can be a curse. Often we hear the story about the professional athlete that despite a multi-million dollar contract gets into financial trouble or the lottery winner that ends up broke after a few years. How does this happen? The answer is a lack of good financial planning and bad behavior. For some reason, people tend to treat a dollar earned differently than a dollar won.

Planned properly, a financial windfall can be the blessing it is supposed to be. With an educated advisor who is looking out for you best interests, you can create a plan that can allow you to life the life you've always dreamed of. This requires addressing all the normal areas of a financial plan such as cash flow management, debt reduction, emergency fund, articulating financial goals and objectives, tax planning, investment planning, estate planning, etc.

The best thing to do as soon as you receive an inheritance, win a lottery, or receive any other financial windfall is to find a financial advisor that will help you create a plan before you start spending money so that you know how much you can spend without running into financial problems.

For example, inheriting an IRA comes with a number of tax considerations that if unknown can cause one to pay unnecessarily excessive taxes. Other cases, people will start buying expensive items such as cars and homes for themselves and others and then find out they didn't consider upkeep, taxes, insurance, etc and end up spending too much and not have enough left to over living expenses. What should be done instead is discuss what the goal is and then plan accordingly. In these examples, financial trouble could have been averted if it was figured out in advance what a reasonable purchase price for the desired house would be and a portfolio could be designed to produce the annual income to provide the desired standard of living.

Using a simple example with numbers, suppose you received $10,000,000 after tax. Assuming a 6.5% long-term average return, this portfolio could produce $400,000 per year of spendable income while reinvesting $250,000 back into the portfolio to account for inflation so that future annual income increases consistent with inflation. Well suppose you wanted to buy a home for $1,000,000; now you only have $9,000,000 and accounting for inflation in the same way, the spendable income is now only $360,000. While these numbers may seem high, all too often the recipient of this kind of money starts spending right away on homes, paying of mortgages and buying cars for family members and next thing they know, that $10,000,000 is now only $5,000,000. Using the same assumptions, now this person can only spend about $200,000 per year but if they have purchased assets that require more than this per year in upkeep, now they have a problem. This problem could be solved in a number of different ways by simply developing a financial plan and discussing various desired scenarios with the financial planner to arrive at a workable plan.

There is no reason that a person that receives significant financial sums from inheritances, winning the lottery, or any other financial windfall should have to deal with financial troubles, so if this has happened to you or someone you love, the first thing to do is find an educated advisor that can help you (they) create a financial plan so that you (they) can live a financial life without worry.

Click here to schedule a consultation to discuss your inheritance, lottery winnings, or other financial windfall you have received.