How To Handle A Windfall

Terre Haute, IN, July 2012:  According to recent data from the Federal Reserve, more than nine million households in the U.S. reported getting an inheritance of at least $100,000. And there is other data which suggests that baby boomers stand to receive over $8 trillion in inheritance over the next few decades. Professional tax preparer, Andrew Stadler, EA, offers some insider knowledge.

“Sometimes such “blessings” end up as curses to those who aren’t prepared. Consider former baseball star Lenny Dykstra, who recently filed for bankruptcy in 2009 after once having a net worth estimated at $58 million. And, of course, the stories of lottery winners’ lives ruined by their winnings have become so pervasive that Hollywood has even begun using the storyline as regular plot device on TV,” Stadler said.

So from Stadler, a few quick essentials to consider, should you find yourself the recipient of a small fortune:

1. Move slowly at first. Most of the bad decisions made with sudden wealth happen in the first couple months. So lock it up in a low-yield savings account for three months; use that time productively.
2. Circle back to your life goals, and evaluate how the money will help you achieve them. You’ve suddenly been given some cushion, but that doesn’t mean your life has to radically change. It might get easier … but leaving behind the goals you created before could make it harder.
3.  Find a disinterested advisor to be a buffer. It’s often best to work with someone who already has experienced handling the finances for people of means. That way they, too, won’t get caught up in the emotion of it. Let them be your “go to” gatekeeper.
4. Immediately, give a portion of it away. There’s something special which happens inside your mind when you give away your money: it loses its grip on you, ever so slowly. What can happen is that you aren’t as affected in your character by the sudden influx of funds.
5. And, of course, assess your tax strategy. Coming from me, this should be a no-brainer, but every gift has a variety of ways by which it can affect your taxes, and many of the moves which a good tax professional can help you make can protect you greatly.

Contact Information

Andrew Stadler

Enrolled Agent

Stadler & Company Acct & Tax Svc

taxman@stadlertax.com