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By by Martin M. Shenkman, CPA, MBA, JD
The recent huge and widely spoken of lottery winning suggests planning opportunities for the winners, but these planning ideas have lessons which can be applied to anybody coming into a windfall: lottery winner, jackpot winner, beneficiary whose trust ends, someone receiving a large inheritance, even to a lesser degree a year end bonus:
1. Few people who win jackpots hold onto anything. That is the reality! So mediate on your new mantra regularly “I will hold on to this windfall and treat it as the blessing it is.”
2. Buy or Increase Insurance, Property/Casualty/Liability – You’re a target. If you have new or larger wealth make sure your coverage is up to the task of protecting you. It may also be prudent to raise deductibles since you can afford the small dollar claim better than before. Use the savings from the higher deductibles to support even better high end coverage.
3. Remember your favorite uncle. In case you forgot his name, it’s “Sam.” Uncle will insist on being paid, and will in fact be paid. So hire a CPA immediately, figure out what of any check you receive has to go to taxes and set that aside in a separate account that cannot be touched. Invest that account conservatively and in a manner that will generate whatever conservative income you can get before the next payment is due. Way too many people get themselves in trouble by forgetting their fav relative.
4. Set aside some fun money for now. If you’re too strict on a diet you might binge and end up worse off, so you have the piece of pizza or order of fries once in a while. So, too, with a financial windfall. Prudently earmark some for some fun things you’ve wanted to do, etc.
5. Set up a budget with a financial planner and live with it. Even if you think you’re loaded, you still need a budget. Very few people really realize what portion of a pot of funds they can spend each year without depleting, on an inflation adjusted basis that pot. You want that windfall to last a lifetime, not a few years and fizzle.
6. Get an investment plan so your wealth lasts for your lifetime. Don’t invest in wild deals, your buddy’s new venture, and other gimmicks. Hire a solid investment adviser with real credentials and a track record. Make sure you understand the plan. Get an independent CPA that was not recommended by your investment adviser. Have your CPA review the investment plan proposed by the investment adviser before you approve it. Remember, diversification, monitoring and applying tried and true investment planning, not hot sizzle, will make your money last.
7. Put a lot of money in a trust so a trustee can so no to your friends, not you.
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