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Fee Only Financial Planning and Investment Management
Fee Only Financial Planning and Investment Management

We all may have heard stories of people who received a windfall of hundreds of thousands of dollars, or more. Commonly, they come in the form of inheritances, life insurance, personal injury settlements, lottery or gambling winnings, or other sources.

After receiving the money, oftentimes, you hear that the person has nothing to show for it after 5 or 10 years, sadly, because of mismanagement or a whole host of other reasons.

If you receive a sum of money, it may serve you well to work with a financial planner who can propose strategies to take advantage of the windfall.

Consider all the possibilities

As you weigh the options for what to do with your windfall, here are some action steps to consider:

  • Pay off high interest debt. Generally, whenever you have debt that comes with a high interest rate, such as a credit card balance, you should try to pay it off as soon as you can.
  • Reconsider your investment plan. Your windfall may mean changes to your investment goals or risk tolerance. Now is a good time to sit down with a financial adviser and make needed adjustments.
  • Put some of the money aside as an emergency fund. Place some of the funds you receive into federally insured money-market or high-interest rate savings account earmarked for emergency savings. Divide the money into more than one bank if you inherit more than $250,000, as the FDIC will cover up to $250,000 per account.
  • If you don’t need it, consider disclaiming it. If you don’t really need the windfall, consider disclaiming it, which would allow the assets to bypass you and go directly to your heirs, without being subject to estate taxes.
  • Consider implementing estate planning documents. If you have assets that would pass through probate or otherwise want to devise a plan for how to divide and leave funds to your heirs, consider putting an estate plan into place if you don’t already have one.
  • Other strategies. There are other strategies of how to utilize the windfall including annuities or trusts depending on the financial profile of the client.

When trying to decide among competing priorities, work with your financial planner to determine what makes the most sense given the various advantages and trade-offs.

Post Author: Teresa Cho Edwards CFP®

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9500 Medical Center Dr 440-C
Upper Marlboro, MD 20774
Phone: 301-357-4761
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