You Just Came into a Large Sum of Money—Now What?
A sudden windfall—whether from an inheritance, a legal settlement, a business sale, or even a lottery win—can be life-changing. But while an influx of wealth brings exciting opportunities, it also comes with financial complexities that can quickly turn a blessing into a burden if not handled properly.
If you find yourself with a significant sum of unexpected money, here are steps to help ensure your newfound wealth works for you in the long run.
1. Pause Before Making Big Decisions
It’s natural to feel the urge to make immediate changes—buying a new home, helping family members, or splurging on long-desired luxuries. However, impulsive financial decisions can deplete a windfall faster than you might think. Give yourself time to process your situation. A cooling-off period of a few months allows you to make thoughtful, informed choices rather than emotional ones.
2. Understand the Tax Implications
A windfall may come with tax obligations. Depending on the source of your funds, you might owe income tax, capital gains tax, or estate taxes. Here’s a quick breakdown:
Inheritance: Most inherited assets aren’t considered taxable income, but earnings they generate (like dividends or rent) can be.
Legal Settlements: Some settlements are tax-free (like personal injury awards), while others (such as punitive damages) may be taxable.
Lottery Winnings: These are typically taxed as income at both federal and state levels.
Consulting a tax professional can help you understand what you owe and how to minimize your tax burden legally.
3. Protect Your Money
A windfall can make you a target for scams, fraud, or simply unwise financial decisions. To protect yourself:
Avoid announcing your wealth publicly. Keep your financial details private, even from extended family and friends.
Deposit your funds safely. Large sums may exceed FDIC insurance limits ($250,000 per depositor per bank), so consider diversifying accounts.
Update legal documents. If you’ve received a large inheritance or life insurance payout, update your will, beneficiary designations, and power of attorney.
4. Eliminate or Manage Debt Wisely
Paying off high-interest debt (like credit cards or personal loans) is usually a smart move. However, not all debt should be erased immediately. For example, a low-interest mortgage or student loan may not need to be paid off in full if you can instead invest your money for a higher return. A financial advisor can help determine the best strategy.
5. Create a Long-Term Financial Plan
A financial windfall should be seen as a long-term resource, not just a short-term gain. Consider the following:
Investing: Instead of keeping all your money in cash, consider investing in stocks, bonds, or real estate to grow your wealth over time.
Emergency Fund: Set aside a portion of your funds in a high-yield savings account to cover unexpected expenses.
Retirement Planning: Contribute to retirement accounts like an IRA or 401(k) to help create future financial stability.
6. Be Strategic About Giving
Many people who receive a windfall feel an immediate urge to help family, friends, or charitable organizations. While generosity is commendable, it’s important to give in a way that doesn’t jeopardize your financial well-being. Establish a charitable giving plan that aligns with your financial goals, and be cautious about lending money to family members without clear expectations.
7. Work with a Fiduciary Financial Advisor
Managing a large sum of money can be overwhelming. A fiduciary financial advisor is legally required to act in your best interest and can provide unbiased guidance. They can help you:
Develop a sustainable financial plan
Navigate investment options
Minimize tax liabilities
Not all financial advisors are fiduciaries, so be sure to ask before hiring one.
8. Enjoy Your Wealth Responsibly
A windfall should improve your quality of life—not become a source of stress. Allocate a reasonable portion of your funds for enjoyment, whether that means travel, hobbies, or experiences with loved ones. The key is to strike a balance between enjoying your money today and preserving it for the future.
Final Thoughts
Coming into a large sum of money is a rare opportunity, but it requires careful planning to help create long-term financial stability. Taking a thoughtful, measured approach can help turn a windfall into a lasting financial foundation.
If you’re unsure where to start, consulting a fiduciary financial advisor can help you navigate the complexities of managing your newfound wealth wisely.
Remember: The goal isn’t just to keep your windfall—it’s to make it work for you, now and in the future.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.