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How To Handle A Sudden Cash Windfall Or Inheritance


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Special Report: Retirement Planning 2015

E verybody dreams of getting a huge financial windfall. Some people anticipate a large inheritance. Others try to make it happen with lottery tickets.

But what if you should actually receive an unexpected bucket of cash? Who are you going to call first: a financial adviser, a lawyer or Maserati?

All the experts agree that the first thing one should do after receiving a windfall is nothing. Everyone has heard the stories of lottery winners who make big splurges on a lavish lifestyle, and soon the money is gone. The winner's retirement plan (if any) gets shot full of holes.

If cash falls on you, your emotions will take over, and you won't think clearly. So wait at least a month -- and if possible, wait six months -- before spending anything. It may be hard, but it's the only way to avoid making stupid errors and ending up full of regret.

The first person you need to talk to is an accountant. Find out how much you need to pay in taxes and how much you'll take away. Nothing is worse than spending money you couldn't get to keep.

What's The Purpose?

During your waiting period, "you need to think about the purpose of the money," said Patrick Strubbe, author of "Save Your Retirement" and founder of Preservation Specialists, a financial advisory in Columbia, S.C., managing more than $100 million. "What are your biggest needs? For some, it could be paying off debt. For others, it's creating an emergency reserve or investing for growth ."

"If you're not used to this kind of wealth, you may think you can do everything you ever dreamed about," said Sharon Klein, managing director of Family Offices Services & Wealth Strategies at Wilmington Trust. She says that people need to think about long-term goals, how much to spend, what to pass on to the children and how much (if anything) to donate to charity.

"It's important to have a clear vision of a holistic plan of family values and dynamics," said Klein. "If they know what they can afford, then they can enjoy it without buyer's remorse. You will enjoy your splurges much more if they are integrated as part of an overall plan."

In addition to an accountant, during the quiet period you should talk to a financial adviser and a lawyer. Ken Weber, author of "Dear Investor, What the HELL Are You Doing?," recommends finding two or three people in each category.

"Make sure the financial advisers are fee-only registered investment advisers who won't be influenced by commissions. Don't go to someone product- or transaction-driven," said Weber, the president of Weber Asset Management of Lake Success, N.Y., which manages $340 million. "Get it in writing that they are a fiduciary."

"You want someone to be part counsel and help you formulate what your goals are," said Jennifer Marcus, a trust and estate attorney at Hill, Ullman & Erwin in New York. "No one size fits all. Be wary of the attorney or adviser who tells you what they will do without hearing what you want."

Rod Zeeb is a bit unorthodox in his approach. He's the chief executive at the Heritage Institute, which trains professional advisers on how to prepare families to pass on great wealth.

"Everyone gets very excited. Take a little bit and spend it," said Zeeb. "Get the adrenaline rush out of the way, but don't blow the whole thing. Then sit on it for six months."

Talk With Peers

He recommends asking professional advisers to give you the names of clients they know who have gone through a similar experience. "You want to talk to peers," said Zeeb. "Someone who can talk about all the family coming out of the woodwork. These people will have the best advice."

Zeeb also suggests building a small group of people with common sense whom you trust -- people you can run ideas by. They can be professional advisers or trusted friends and family members, but they need to have no emotional attachments or conflicts of interest with the money.

Sometimes it's helpful to set up a formal structure for this group. Then when friends, family and others ask for money, you can say you have a group that vets all requests and actually makes all the decisions on money allocations. They'll take you out of the position of saying "no" to family and friends.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Mutual Funds



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