Last month you may have noticed signs in gas stations reading $999 for the Powerball jackpot. The signs weren’t designed to go into the billions, so that’s their max readout, but the winning ticket (should it be an individual ticket) exceeded millions into more than a billion dollars!
Many of us dream of being suddenly wealthy, and though it’s not billions of dollars, that dream is becoming a reality for many Americans. Most sudden wealth comes not from the lottery, but an inheritance, insurance settlements, the sales of a business, or a lump-sum payment from a retirement plan, and many people with successful careers are charged with a new, unfamiliar task of managing a fortune.
In fact, throughout the last year, we’ve seen reports of record levels of 401(k) millionaires, such as this one from the Plan Sponsor Council of America. This report’s five secrets of financial success have been told in many different forms and formats, but that doesn’t make them any less true. It boils down to maxing out your 401(k) match, adding as much to your savings pot as possible consistently, and having a long time in the market by starting early. The interesting thing is that these basic steps can make millionaires out of people with modest incomes.
What is the gameplan for a substantial financial windfall?
Taxes are the first concern when sudden money is coming into one’s life. Tax exposures need to be assessed and addressed as part of the process. For lottery winners, for example, there isn’t much tax planning to do. The tax rules for retirement distributions are pretty straightforward as well. Planning a liquidity event, such as the sale of a business, can get more complicated. A legal consultation is likely advisable.
Another concern is financial privacy. With retirement planning, the money is required for creating a steady income, so it may not seem like “extra” money that a friend or family member might want to discuss. With lottery winnings or the sale of business and sudden liquidity, there are many stories of friends that show up looking for a loan or offering an “investment opportunity.” Or having charities constantly knocking at the door. Most difficult of all is broaching the idea that one’s family might not act honorably.
Garden State Trust Company has experience with wealth management. We know all about financial transitions and the attendant emotional adjustments. When you come into significant sums, call upon us for advice and/or management for:
- personal investment accounts, with asset allocation planning, unbiased investment advice and fees linked to account value (not transactions);
- revocable living trusts, for an added measure of financial flexibility, including protection in the case of disability and probate avoidance;
- rollover IRAs to extend the tax-deferral benefits for your retirement money.
Creating a gameplan for an inheritance as well.
Leaving an inheritance is a wonderful gift that can help create a substantial legacy. There is going to be a huge wealth transition in the coming thirty years as people will be leaving an inheritance who never received one themselves. Thus, they don’t have a template for the best way to structure a large bequest. The good thing is that they don’t need to build one themselves, and that is where the experts at Garden State Trust company can come in to help.
If your estate plan includes a substantial legacy for a younger family member who lacks full financial maturity, consider using a trust for the bequest and naming us as your Trustee. Your trust will be a gift of more than financial resources. You will be including our investment and financial management expertise as well. A gift or bequest in trust can provide for a lifetime of financial security.
Please let us know if you’d like a consultation.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
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