by | Apr 26, 2024 | Personal Finance | 0 comments

Every week, people play the lottery hoping that a big win will solve all of their problems. But sudden money is trickier than that. It comes with both new opportunities and new problems. And a whole lot of new territory for you to navigate, often in public. Here are 5 essential considerations for anyone faced with a financial windfall, to help you navigate those new waters with less stress.  

Get ready for a rollercoaster of emotions, from invincibility and euphoria to confusion to fatigue. Money doesn’t change the fact that you are human. Receiving a windfall often amplifies how you deal with money both emotionally and financially. That’s not necessarily bad, but it can lead to trouble when emotions catch you off guard.  

Therefore, one of the best things you can when you receive a windfall is to connect with a few trusted professionals who are familiar with this territory. Not salespeople (who are likely to begin showing up at your door) – these should be fiduciaries who have specialized knowledge and experience with people in your situation. Working with a team of professionals can also help you deal with the stress of instant celebrity and rapidly shifting relationships. You can say something like, “I will talk to my team about this and get back to you” – rather than feeling pressured to make quick decisions that may be irrevocable.  

Seek out a knowledgeable estate attorney.  Most people don’t have to consider estate taxes because the threshold for paying federal estate taxes is quite high (in 2024, it only applies to estates worth $13.61 million).  Winning the lottery may put you in a new situation where estate taxes need to be considered, especially if you have children.  Even if federal estate taxes won’t be triggered by your winnings, working with an estate attorney can help you make sure your money, your family, and your privacy are protected, both now and in the future.  You may have never thought about this before, but it can become quite important if you become an overnight celebrity. 

Find a great tax preparer. Depending on the size of your winnings, you may be facing a very different tax situation – maybe just for one year, or maybe for many years. A knowledgeable tax advisor who is up to date on the latest laws can help you think through the advantages or pitfalls of decisions you will need to make.  They can also help to make sure you don’t end up paying unnecessary taxes.  

Consider personal choices like gifting. If you are feeling generous and want to give money to family or friends, you might have the means to do so, but you need to be aware of potential gift tax issues. You can gift up to $18,000 per person in 2024 without triggering gift tax. An expert tax preparer or planner would also know that direct payments to colleges, universities, and/or medical institutions don’t count as gifts and wouldn’t set off that limit.  

Connect with a financial advisor with a specialization in sudden money. A trusted advisor with experience in windfalls can help you navigate the new world where you may suddenly find yourself. Often winners forget that even a large amount of money is still finite! Going on a spending spree can wreak havoc on what could have been a wonderful future. To prevent this from happening to you, begin by doing your spending on paper rather than at a dealership. We have a tool called “Bliss List” that helps clients think through this. A planner can help you to be realistic about how much money you can actually spend without jeopardizing your future and ending up worse than where you started. The point is to be able to enjoy your new wealth for a long time – not just today.  

Take your time.  Do NOT feel pressured to: 

  • give money to anyone and everyone who asks you for it (it might cause more harm than good); 
  • purchase big ticket items (they may not seem important to you in the future);  
  • enter into investments that don’t make sense to you (be leery and cautious of any and all offers).  

It’s easy to get overwhelmed and pulled in many different directions. Arm yourself with this knowledge (from Susan Bradley’s book “Sudden Money: Managing a Financial Windfall”):  

“It is far from the norm for people with real wealth to impulsively spend money on luxury items or to ever jump into exotic investments.”  

When you receive a windfall, instead of thinking that you need to suddenly change everything, take this opportunity to step back and evaluate what is truly important to you. Take a time-out and slow down. Doing so may be the most important step you take. It will help to steady and guide you in making your next big decisions.