Highlights:

  • If you are lucky enough to receive a financial windfall there will be numerous personal, financial and legal decisions that you will need to address. Proceed with caution.
  • Give careful thought to who you tell about your good fortune, and how you can utilize it to help others.
  • The selection of skilled and trustworthy advisors to help you manage your wealth responsibly is tough work.  Plan to work hard at it.

My wife said to me:  “If you won the lottery, would you still love me?”  I said: “Of course I would.  I’d miss you, but I’d still love you.”

– Frank Carson

A winning Power Ball lottery ticket worth a whopping $768.4 million ($477 million if collected in a lump sum) was recently sold at a Speedway gas station in New Berlin, Wisconsin, which is a short jaunt from my home.  As you can probably imagine, this was big news here in Dairyland. 

“A jackpot of this size can make many dreams come true – not just for the winner, but for all lottery beneficiaries and the lucky state of Wisconsin,” said David Barden, Powerball Product Group chairman.  (The gas station will receive $100,000 for selling the winning ticket and Wisconsin will collect $38 million in taxes — if the lump sum option is chosen.)

The odds of winning the Power Ball start at about 1 in 300 million, so it’s very unlikely that any one person reading this blog post will ever win the jackpot.  However, the chances of experiencing a windfall of one sort of another, whether in the form of an especially profitable investment, an inheritance, or otherwise, are not nearly as long.

Regardless of a windfall’s source, the decisions that follow a financial bonanza will play a major role in determining whether your good fortune is fleeting or enduring.  The first step is recognizing that with increased wealth comes increased responsibility.  Here are some tips that could come in handy if you experience a big pay day.

Be careful who you tell.

Your ship may have come in, but (as was often repeated during World War Two): Loose lips can sink ships.  If you don’t want to be bombarded with requests for money or be the topic de jour on social media, then resist the temptation to advertise your financial success.

Respond carefully to requests for financial assistance.

Give careful thought to how you can best use your new-found wealth to help others, and perhaps just as importantly, how to graciously refuse requests for financial assistance.  Few things are harder on a relationship than saying “no” to a request for a helping hand (or handout).  Consider delegating this difficult task to a trusted professional.  An estate planning attorney with experience helping clients with wealth-transfer planning could be a good choice.  Another option is to establish a trust that gives a third-party trustee the authority to make gifts.

Invest the time and effort needed to select good advisors.

It goes without saying that you will want to hire a top-notch CPA and a good financial advisor, which in my view should not be the same person.  That’s because if you have one of each, one can help you keep an eye on the other.

You don’t have to know much about taxes to select a quality CPA, but your good luck will have to continue if you hope to select a financial advisor without knowing anything about finance.  If you would rather not test your luck, then invest the time to learn the fundamentals about intelligent portfolio management.

Fortunately, there are a number of informative and easy to read books on the subject, including “What Wall Street Doesn’t Want You to Know: How You Can Build Real Wealth Investing in Index Funds” (a bit dated, but still relevant) and “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” by Jack Bogle, (one of the most intelligent investors of all time.) 

Park your money somewhere safe while you are learning what you need to know to pick a good investment advisor.  If the amount involved is too large for it to be covered by FDIC insurance ($250,000 at the time of this writing), consider depositing the money in a brokerage account, where your winnings can be invested in short-term U.S. Treasury securities.

Make sure you have a sound estate plan. 

With a well-drafted estate plan, you can:

  • Protect your assets from lawsuits.
  • Control how your property will be distributed at the time of death.
  • Reduce wealth transfer taxes imposed on your estate and reduce capital gain taxes your heirs might otherwise have to pay.  (More on this in a future blog post.)
  • Protect your heirs’ inheritance from divorce and creditors.

Treat yourself.

Go ahead and live a little.  Just don’t over-do it.  It’s easy to get carried away when engulfed in feelings of happiness.  Rather than buying things that may lose appeal over time or be costly to own, consider splurging on experiences that are sure to last you a lifetime, like a dream trip to an exotic destination with a loved one whose company you treasure.

Don’t lose sight of the people that matter most

A blessing can turn into a tragedy if it costs you the love and affection of family members and friends.  Be careful not to get so wrapped up in a new lifestyle that you lose site of the people you are closest to.

It’s harder than you may think to be a good steward of new-found wealth.  In fact, about 70 percent of people who win a lottery or get a big windfall actually end up broke in a few years, according to the National Endowment for Financial Education. 

The foregoing suggestions could help keep you in the green for the rest of your life, if by chance you strike it big.  Hopefully you will have many years to enjoy your good fortune, unlike Sid Caesar in National Lampoon’s Vegas Vacation.  (As always, ignore any pop ups that might appear during the video.)

I hope that helps. 

Thank you for reading,

Mr. Market Commentator

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