Dedicated to Deposits: Deals, Data, and Discussion

How to Handle a Windfall


How to Handle a Windfall

You win the lottery, your grandfather leaves you a fortune, you get a settlement from your divorce or accident. Whatever the reason, you now have a significant sum of money that will change your life. Dream come true or nightmare?

Sudden wealth, much like overnight success can be problematic. “The big difference in making money and receiving money in a windfall is when you make it and save it, you know how hard it is to come by. When it comes to a windfall, there isn't that ingrained respect for the challenge of accumulation, and it can become easy come, easy go,” warns Mackey McNeill, founder of Mackey Advisors, a wealth advocacy firm.

According to a study by economists at the University of Kentucky, the rate of lottery winners filing for bankruptcy within five years of winning is double that of the general population. Interviews by the Williams Group of more than 2,000 families who had gone through estate planning and wealth transfer revealed that 70 percent of those families lost control of their assets – and their family harmony – in the first generation after the transfer, says Tiffany Washington, founder of Washington Accounting Services.

“A person coming into sudden wealth may experience anxiety, trust issues, and a sense of being overwhelmed. People in this situation can feel very isolated. They may not be able to relate to their friends any more and it could put a lot of strain on their relationships. This could be because they doubt everyone, and they become paranoid,” says Washington.

For sure, it's a highly emotional time, especially if the money is an inheritance from a loved one, there's the grief factor and maybe a guilt factor too. If you find yourself suddenly wealthy, financial advisors have much advice.

Chill. Take for example an inheritance. “Deal with the emotional loss first. Your decision-making skills are not at their peak during this time. By waiting 6-9 months before making any big decisions or commitments you are giving yourself time to heal and reflect on what is important to you,” says Denis Horrigan, a certified financial planner and partner at Connecticut Wealth Management. Also be prepared to wait. Settling an estate can be a long process – time consuming and frustrating. Often it can be months before any money is distributed to its respected parties. To completely settle an estate, expect this to take a year, if not more, says Horrigan.

Regardless of the scenario that brought you wealth, do not rush into anything. Wait 6-12 months before making any decisions about the money. While you wait, keep the money safe and accessible, say in a savings account or money market account.

Keep quiet. “Keep the news of the windfall to immediate family to avoid jealousy or expectations from other family members and friends,” says Mitch Brill, a certified financial planner with MassMutual, who adds, “Do not quit your job – if at all – until you truly understand how much income you will need for the rest of your life to ensure you don't outlive the money.”

Resist temptation. Forget that new house, car, boat, Rolex or whatever tickles your fancy, in the short run. “You don't want to buy too much too fast,” says Washington. You don't want people asking questions about where all that money you're spending is coming from, less they start asking for loans before you've decided what you want to do with your good fortune.

Build a team. If you don't already have an accountant and financial advisor, now's the time to do so. You can discreetly ask friends and families for referrals while staying mum about your real reason. You want to build your team carefully. “There are financial planners of every type, size and ability, many of who will be looking to make a quick dollar for themselves. Take your time finding an advisor,” says Ted Sarenski, CEO of Blue Ocean Strategic Capital. If your windfall is huge, you may need to add a lawyer and insurance professional to your team.

Know your risks. With your new-found wealth, you may be an even better target for legal attacks. Have your insurances reviewed and make sure your coverage limits are sufficient to protect you. Also realize that our estate plan may have been appropriate before the windfall, but may not after it. For insurance, your life insurance coverage may need to be increased in order to cover estate taxes due upon your death, points out Horrigan.

Avoid mistakes. While you don't want to broadcast to your family that “you're in the money”. You can't ignore Uncle Sam. “Many people in this situation don't pay taxes because they can often be deferred until the next tax period. Often, the money is spent but the liability still remains,” warns Bryce Noel, president of Black Diamond Strategies. Keep the right perspective. “Remember the $10 million paycheck is not coming every two weeks. You have to keep telling yourself that,” says Noel.

Make a plan. Michael Goodman, president of Wealthstream Advisors offers a few last thoughts, “Build a foundation before spending. Establish cash reserves and pay down expensive debt.” Once that matter of business is resolved, you're ready to start thinking about your goals and how that new-found wealth can help get you there.



Related Posts

Comments
46 Comments.
Comment #1 by me1004 posted on
me1004
Yes, like this will ever be an issue I will have to suffer with. Woe be me. 

3
Comment #2 by Paoli2 posted on
Paoli2
me1004:  I agree with you.  How I would love to have those problems!!  I think I am more "woeer than you!" :)  However, someone has to win the lottery and usually it's a person who bought a ticket so that's not me either.

2
Comment #3 by Anonymous posted on
Anonymous
"Build a team"?????  Worst advice you could get! Are you kidding????  That's a nice way to see your money disappear. I would tell not a soul.....NOBODY!!!!!  And invest it myself through online brokerage or online banks. You tell nobody......and I mean NOBODY!!!!! Everyone has an agenda....and guess who it at the top of their list? Themselves....that's who. Go ahead......call me paranoid or a Scrooge....I don't care.

22
Comment #9 by Kaight posted on
Kaight
#3 gets my vote.  Call you paranoid or Scrooge?  Not a chance.  Just smart.  After scrimping and saving all my life, I unexpectedly received a (small) windfall just in the last several years.  It was not from another person, not an inheritance or settlement, and I don't play the lottery.  I found, having run money prudently all my life, the windfall was quite managable.

However:

I did experience the endorphin rush which is commonplace in these windfall circumstances.  It was great fun and I laughed at myself any number of times because, even though I understood what was happening, the human brain being what it is I could not stop it from happening.  Anyone who actually acts on one of those endorphin rushes, and I guess some folks do, is headed toward severe trouble.  In my case I knew it would fade away in a few days.  It did, my windfall remains intact, and in these challenging times that's not such a bad thing.  

10
Comment #13 by Anonymous posted on
Anonymous
#9, Kaight, you are so right!

Describes my spouse and I to a "T".

1
Comment #4 by Anonymous posted on
Anonymous
Considering that most of the people here are from the Neolithic Age, the likelihood of them having anyone older than them die & leave them money...............is minimal. 

2
Comment #6 by Anonymous posted on
Anonymous
#4:  Neolithic Age??  I beg your pardon.  "I" am from the Paleolithic Age.  Hence the name "Paoli".  So please keep insults on target.  However, you are so right in that all who could have or would have left me anything but a well carved stone to protect myself with are long gone.  Hence I am left only with Ken's Blog to help me survive until I get to do the dance of "No Need for Money Any Longer".  

4
Comment #5 by Anonymous posted on
Anonymous
The "Build a team" step is where a lot of people go wrong by finding a salesman who claims to be a financial planner and recommends things like whole life insurance that gives them a very high commission.

13
Comment #7 by Anonymous posted on
Anonymous
I agree with Anon #3.....Financial people? Never!!  But even worse could be friends and family. I hate to say that....but it's true. Even the ones that mean well can cause a disaster. Best to keep it to yourself and stay paranoid. Think it's a coincidence that people who are called paranoid are also usually the ones that keep their wealth and net worth? Think again.

4
Comment #8 by Smokeboat (anonymous) posted on
Smokeboat
I just kept chasing  women and drinking whiskey....the rest I threw away on the stock market. 

11
Comment #10 by Anonymous posted on
Anonymous
 #4.........I stand corrected. You're right, in that money is only important on the off chance that one doesn't die tomorrow. 

2
Comment #11 by Anonymous posted on
Anonymous
The best advice for someone receiving a windfall is to put it into a one year certificate of deposit, sit back and think about your goals.

9
Comment #12 by Paoli2 posted on
Paoli2
I definitely know what I would do with my windfall but since all our new names are now "Paranoia", I can't tell anyone.  After all these posts today, I have just got to let go of a couple of bucks and force myself to buy a couple of lottery tickets!  I just have to come up with some winning numbers. 

1
Comment #14 by Anonymous posted on
Anonymous
Definitely agree with #3.  But it really depends on the person and what type of financial experience/comfort they have.  What would you do if you came into, say, 10 million today?

2
Comment #15 by Roush posted on
Roush
10 mil you ask? Well, the first 10% or so would go directly to an organized charity and the rest I would spend freely on myself, my family and other less fortunate souls who may come to my attention.  And no, I would not be concerned with current interest rates, investment returns or saving for the future.....I have had enough of that and would keep my present "nest" intact. BTW, since you ask,  what would YOU do?  

2
Comment #16 by Anonymous posted on
Anonymous
I find that once others know you have money, they somehow think some of those funds belong to them.  They expect you to do things for them that never would have been expected, had they not known of your windfall.  Family is the worst, no matter what level of your generosity, you become "cheap" in their eyes because whatever you give them is never enough.

OPM, other people's money, everyone is generous with OPM 

7
Comment #17 by Anonymous posted on
Anonymous
The "Build a team" step is where a lot of people go wrong by finding a salesman who claims to be a financial planner and recommends things like whole life insurance that gives them a very high commission.

This comment is so important I choose to risk insulting others' intelligence by repeating it. (Thank you #5) EVERY "financial planner" I encountered wanted to sell me not only whole life, but also annuities and long-term care insurance, totally ignoring the fact that I have no family and no descendancy line. Even without investment income and living to 100, I could maintain a comfortable lifestyle and self-insure end of life care from my "windfall." Whatever is left will go to charity. That scenario wasn't part of any of their playbooks.

6
Comment #18 by Paoli2 posted on
Paoli2
Is that 10 mil before or after taxes?  Seriously, how much do you think the tax bite would be out of 10 mil?  I have to know just how much I will be left with before I start spending it or sharing it with others.  First thing I would do is buy two condos.  One for us and the other for my precious DD.  A house would mean repairs and maintenance so we need something someone else has to take care of for us.  Depending on how much "Unc" Obama allows us to keep, I would love to be able to just hand out money to the sad, poor homeless people on the streets.  This time it would be in bigger bills!  The major charities get lots of money from other wealthy people or all kinds of fundraising but who helps the homeless?  (Of which we could be when we lost our home but we are able to live in an apartment now).  My DD is an avid animal lover so of course those sad homeless animals would have to be on the list.   And what about our Ken?  Is he already wealthy?  If not, don't we want to include him?  "He" doesn't have to be homeless tho. :)   This was fun.  Now back to the "ugh" real world of worrying about interest rates.

2
Comment #19 by Anonymous posted on
Anonymous
Paoli2 #18....Tax man gets $9,999,999.99.

2
Comment #20 by Paoli2 posted on
Paoli2
#19  Well I guess it ALL goes to the dogs then! :)   You're kidding aren't you?  I was so happy giving out all those big bucks to the homeless.  Now you have ruined my day!

1
Comment #21 by Anonymous posted on
Anonymous
Only the idiots win these contests and lottery. Normal people never win.
Ninety percent of them wind up broke after few years because they shared the wealth with the freeloaders around them and because they bragged how rich they are.

4
Comment #22 by Maecl posted on
Maecl
I don't remember the last time I bought a lottery ticket.  I'm always amazed when I watch someone buy a variety of different tickets.  I'm so out of the loop that I don't even know if this new record lottery is sold it CT.  I should check it out.  A dollar won't break me and I'll take a chance on becoming one of those idiots.

2
Comment #23 by Paoli2 posted on
Paoli2
Maeci:  Wouldn't it be a toot if all of us bought even one lottery ticket and one of us actually won?  Somebody has to!  I disagree that those who do buy are idiots.  Everyone dreams of being wealthy and as long as they are not using money needed for food or rent etc. , I can't see why they are idiots.  We all have dreams.  What is life if we can't dream it will get better for us and our loved ones.

2
Comment #24 by Maecl posted on
Maecl
Paoli2:  You're right, I shouldn't have called them idiots.  I too have many positive things I could do if I won.

I was thinking of #21 when I posted, and the many people I see buying many tickets on a weekly basis.  Between the lottery drawings and scratch offs it really adds up.

2
Comment #25 by Anonymous posted on
Anonymous
Make light all of you about the source of a windfall, but for some of us it is an unwelcome albatross. Part of mine came from my son's insurance policy and the rest from a settlement of the wrongful death claim against his employer.

3
Comment #26 by Paoli2 posted on
Paoli2
#25:  Where do you get the idea we are "making light of the source of a windfall".  Personally, I can understand why you or no one I know wants to make money the way you got it if I understand your post.  I would be too upset to know what to do in your circumstances.  Yours was not the typical windfall I think we were considering.  I am so sorry it had to come to you in the way it seems to have by your post.

3
Comment #28 by Maecl posted on
Maecl
Dear #25,

I would never make light of your situation.  I would not consider that a windfall.  It is too painful.  I have seen up close the toll of a loss like yours.  I hope you can find some pease.

# 27 What you said is beyond shameful.  How could you be so heartless?

2
Comment #29 by Anonymous posted on
Anonymous
#28........Pain should be a private experience. Everybody reading this has probably suffered a loss at one time or another. Given the choice of suffering a loss or suffering a loss with a windfall would be an easy choice for anyone. Posting online about a windfall being a burden is as nonsensical as someone who is born with a silverspoon in their mouth lamenting how being born rich is such a heavy burden. My response to either of them is the same. I am here & willing to relieve you of all your burdens. 

4
Comment #30 by Maecl posted on
Maecl
#29:  I'm well aware that having money is an big advantage when problems come. For instance, a serious illness for the wealthy would give them one less hurtle, but it would be just as scary to endure.

What you said to #25 is wrong.  It doesn't matter how you justify it.

1
Comment #31 by Anonymous posted on
Anonymous
#30.........In your opinion it is wrong. In my opinion it is fair comment.

3
Comment #32 by Paoli2 posted on
Paoli2
#31:  You evidently have never had a child, son or daughter or I do not see how you could post such a post to the other poster and not feel his pain.  Frankly, I think you truly meant what you wrote and you have no way of understanding why so many of us are very concerned to know this.  I am just grateful that most people I know are not like you.  How sad to actually post such negative feelings.

2
Comment #34 by Anonymous posted on
Anonymous
Why is it anytime someone has a different opinion they are labeled a "troll"?  Apparently some people have a very lack of tolerance for people who do not think like themselves.

4
Comment #36 by Anonymous posted on
Anonymous
.

.

Dear Anonymous - #25,

First of all - I do feel sorry for your loss. With that said, let us analyze what you've posted.


>> Part of mine came from my son's insurance policy

You are admitting that it is "windfall" - a gain, an advantage - which are nice to have.  The cause of such gain/advantage of course is not nice, but the outcome 'windfall' surely is.


>> Part of mine came from my son's insurance policy

The fact that your son had the policy in the first place is indicative that he intended you to have this gain, this advantage.  So why would you consider it an albatross - a curse or a burden?  If you are able to make a clear distinction between the cause (his death) and the outcome (resulting windfall) then perhaps you'll recognize this as merely carrying out what your son intended when he (or someone) took out the policy and paid the preminum. ... No?

 
>> the rest from a settlement of the wrongful death claim against his employer.

Would that not be merely what the court judged / out-of-court settlement deemed, as "fair" punishment of the employer?  As the NOK you got the benefit of the "wrongs" committed by the employer.  Once again, I am not being insensetive towards your loss, but you being the NOK are just the party who is betting benefit because of the the wrongs committed by other party.

 
>> for some of us it is an unwelcome albatross

If despite this you believe that monatary gain is a curse, rather than an advantage ... well ... then that's your belief.

 
Yours Truly,

Anonymous

4
Comment #40 by Anonymous posted on
Anonymous
I assure you that Yours Truly Anonymous & myself are not the same person. I'm fairly certain I can't write like he or she does & I'm dead certain I don't want to!

1
Comment #41 by Anonymous posted on
Anonymous
After reading the comments #38 and #39, I believe all the poster has to do is simply look in the Morrow to see who the "troll" really is.  By it's own definition, post #35 describes it's self.

2
Comment #42 by Anonymous posted on
Anonymous
Too bad the article only applies to a handful of people...so those issues listed are not really a concern to me...but statistically speaking, virtually zero...

1
Comment #43 by TrollHunter (anonymous) posted on
TrollHunter
Anybody seen that troll?

2
Comment #44 by Anonymous posted on
Anonymous
Replying to an earlier post, what if you came into 10 million dolars after taxes.  What would I do?  I am relatively young (<50) and have a family, and although that sounds like a lot of dole (and it is) it's not enough to live fancy free in today's world.  I know the reaction this statelment will illicit but it's honestly how I feel.  I would probably end up investing it in low-risk vehicles like long-term CD's, and select state muni's, and try to live off the income.  I would not build a financial "team" which would just suck away .5% or about 50K/year for fees.

1
Comment #45 by Maecl posted on
Maecl
Vanguard has an article on this today.

https://personal.vanguard.com/us/insights/article/windfall-11282012

1
Comment #46 by Anonymous posted on
Anonymous
#45  Thanks for sharing the Vanguard article but before Vanguard writes articles on Windfalls, maybe they should consider tweaking their interest rates on CDs a bit higher to help their customers.  Their rates are even lower than regular banks and credit unions.  I told them I think they are giving lower rates to their people can take their commissions out of the rates and they need to quit telling us they "don"t" charge commissions for CD purchases!  Just be honest and tell it as it is.

2
Comment #47 by Maecl posted on
Maecl
#46:  I have been looking at CD rates at Fidelity where my husband has his rollover 401K.  The rates are anemic, but better than the money market.  In this environment we can't decide what to do with the cash portion we have held since last Feb.  We were waiting for rates to go up to increase bond fund holdings.  Now we are just looking for a better short term rate.

1
Comment #49 by RJM posted on
RJM
Way back when I used to be a real small, side of the road curbstone car dealer. A one man operation. I would work hard at finding good deals on cars under $3000 and resell them to the working poor and/or first time car buyers. I did fairly well but worked hard & saved my $.

I watched some guy inherit a couple hundred grand, buy a car lot and take on its expensive monthly rent and then went hog wild at the auctions for the next 9 months running prices up on every car he was bidding on.

It was clear he didnt have the first clue what he was doing and his lot closed up in about a year and apparently he had blown over $200k in his attempt to play "big shot car dealer".

I never "got big" but I remained solvent all my years in the car business. Unlike the guy that went from $200k to zero. I went from nearly zero (I had about $5000 in savings when I started) to millionaire.

Now, its virtually impossible to be a cubstone car dealer like I was for so long. The cities and other dealers have cracked down on it. So Ive never got back in even when I took a beating when the stock market went way down.

 

3
Comment #50 by Anonymous posted on
Anonymous
RJM............Wow, the oh so unglamarous life of a used car dealer.  Really, the story needs a bit of action, maybe some ilicit behavior & intrigue, just to give it a bit of oomph you know. Still, I can perhaps see it as a semi charming rags to riches story...............nothing for the big screen obviously, more like straight to cable, that sort of thing. 

But, one thing I don't understand. What has your story to do with the topic here, which is about a sudden "windfall"?

1
Comment #51 by Paoli2 posted on
Paoli2
#50  Incase you are still curious, didn't you read the sentence where the poster wrote he went from "nearly zero to millionaire"?  That is not exactly the type of windfall most of us think about but being a "millionaire" is always a special windfall in my book.  That is, as long as he was able to continue being in that category.

1
Comment #52 by car dealer (anonymous) posted on
car dealer
Hey boss your page is osam ......................great               ,,,fine .....thank,s for achess.....................

1