By Cecilia Yontz, OSCPA marketing and communications intern
Winning the lottery isn’t the only way to receive a financial windfall.
“A financial windfall can be broken down into a couple of categories,” said Mark Thomas, a senior vice president with the AICPA Membership Insurance Programs. “You could inherit money when somebody in your family passes away and you're the beneficiary of their estate; your surviving spouse or partner could pass away early, and you could inherit their life insurance proceeds; or you could be injured in an accident and recover a settlement.”While each situation is different, there are some steps you should take to preserve your newfound wealth regardless of the circumstances. Thomas says the first step is to not make any major financial decisions for at least six months.
“That's generally where people make their biggest mistake,” said Thomas. “They're so excited to have this newfound pot of wealth and money and they go out and they do something right away. And they haven't really sat back and done any planning.”
Planning is something that should be done during those six months. It is important to seek good guidance from both experts, and those within your inner circle.
“You may need a financial adviser outside of your own skill set,” said Thomas. “And you will certainly need a legal adviser, because now that you've received a large sum of money, you have an estate. And if something should happen to you, you want to make sure all that inheritance, settlement money, or life insurance proceeds go to the right people.”
CPAs are in a unique and beneficial position when it comes to managing a financial windfall because they have a strong financial skill set. Thomas noted that it is not necessary for a CPA to hire a financial adviser in this situation, but they can still benefit from additional guidance.
“A CPA might not have to hire a financial adviser since they're already financially astute and surrounded by people who are financially savvy,” said Thomas. “But even just bouncing ideas off of other colleagues or friends in the profession can be really beneficial.”
In addition to planning, when you receive a financial windfall, it is important that you establish your inner circle and maintain privacy.
“Learn to be discreet, don't post it on social media, and make sure you take some time to think it through with good advisers,” said Thomas. “Talk to your advisers, the people who are closest to you in life, friends, parents, partners, and just keep it to that circle.”
While these steps may seem simple, Thomas reinforced that it can be difficult to think of the obvious when faced with newfound wealth. Managing a financial windfall is a situation that not many experience, but it is something that everyone should have some knowledge of in case it happens to them.