Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

What to do with a sudden financial windfall?

If you have suddenly found yourself responsible for a large sum of money from inheritance, the passing of a spouse, a legal settlement, divorce or a gift, it can be overwhelming when trying to figure out what to do first.  Oddly enough, this sudden financial windfall can feel more like a hardship when not armed with the right information. Am I going to owe taxes on this money? I want to be responsible with these funds, is investing the money a wise decision?  These are just a couple of the questions that you might be considering. There are several steps that can help you make wise decisions with this windfall, while being able to enjoy it along the way.

Understand, if any, the Tax Implications

In most cases, funds received through inheritance, death and gift are taxable by the IRS.  It is important to understand the amount that is subject to tax and to set aside enough money to cover the tax implications.  A good first step is to talk to an accountant for more clarification.

Put Together a Plan, Both Financial and Lifestyle

Speak to a financial advisor about setting up your customized financial plan to determine just how far your funds will take you.  This will help you better understand your monthly income versus expenses, expected growth of your money, and understanding if you have enough money to make it last or if there is enough money to gift to your heirs.

However, just as important is having a lifestyle plan.  Understanding the numbers is one thing, but it is important to know how that translates to your life.  How do you envision your retirement? What are your bucket list items you’ve always wanted to try or do or visit?  Too often, when we have the opportunity and the time, we continue to stress about our finances and find reasons to not to do what we dreamed of.  A lifestyle plan to accompany your financial plan will hold you accountable and help to provide peace of mind.

Establish or Update Your Estate Plan

Even if you have already set up your estate plan, there may be significant changes to make after receiving a financial windfall.  It is a good idea to make sure that your funds are distributed exactly to your wishes upon your death. Having a detailed estate plan will help distribute your assets so that your grieving beneficiaries do not have to go though as much trouble during a difficult time.

Create an Emergency Fund

Set up a high-yield savings account that is ear-marked for unforeseen expenses and emergencies.  Through your financial plan that was created, you will have a good idea of your monthly expenses.  This emergency fund should not contain much more than 6 months of expenses. In today’s low interest environment, it is not wise to have much more than 6 months of expenses being chewed up by inflation.  

For additional information specific to your circumstances, reach out to my office at 805-234-7288

Michael Metzger CA Insurance LIC# 0H86440, is a registered representative with and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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