Written by The American Academy of Estate Planning Attorneys,
Compliments of Morris Hall
We’ve all had dreams about striking it rich with a Powerball lottery, a progressive jackpot win, or an unexpected inheritance and all the things we’d buy with it. But what would you do if your dream suddenly became a reality?
When you unexpectedly come into a large sum of money, the first temptation might be to spend, spend, spend! But, of course, that’s not the wisest thing to do – and it can land you in a lot of trouble.
As unpleasant as it may be, the first to think about is taxes. Money won in the lottery, on a royal flush, or just found in your backyard is considered taxable income and has to be reported to the IRS. On the other hand, if a wealthy relative decides to generously share some of his or her fortune with you, then you won’t have to pay income tax on the money, but there will likely be other tax issues to think about. Estate planning attorneys are well-versed in these types of tax issues and can help you figure out what taxes may be owed.
Skip this all-important first step at your own peril. Remember Richard Hatch? A few years back, he won $1 million on the television show Survivor, and failed to pay income tax on his winnings. His penalty? Ten years in jail.
After you figure out what portion of your windfall is owed to the IRS, then it’s time to make your money work for you. An experienced financial planner can take a look at your age, your family situation, and your overall financial picture and help you figure out how best to invest your money to maximize your returns and meet your financial goals.
Once you have a financial plan in place, you’ll want to put together a plan for taking care of your family – and your finances – if you die or become incapacitated. A qualified estate planning attorney can help you tailor a plan for your specific needs. Common estate planning tools include a financial power of attorney and a power of attorney for health care to allow you to appoint someone to make financial and medical decisions on your behalf in case of your disability. A Revocable Living Trust can be established to provide for the management of your property in the event you’re incapacitated and to allow your property to pass to your beneficiaries, efficiently and outside of probate, after you pass away.
If you’ve received a sizable windfall, you’ll want to discuss advanced estate planning and asset protection options with your attorney. There are steps you can take not only to protect your assets from judgment creditors while you’re alive, but also to protect your loved ones’ inheritances after you’ve passed on. Your estate plan can also help you minimize taxes, ensure that your children don’t squander the wealth they eventually inherit, and leave a legacy to your favorite charitable institutions.
The first step to making the most of your windfall is to meet with an estate planning attorney with Morris Hall. He or she can help make sure you enjoy your good fortune while building a secure future for you and your family.