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June 2017

First Steps for Handling an Unexpected Financial Windfall

It may seem far-fetched to imagine yourself on the receiving end of an unexpected financial windfall, but many people will experience a sudden influx of cash at least once in their lifetime. Windfalls don't always come from winning the lottery; they can be legal settlements, inheritances, proceeds from the sale of a business, unplanned investment gains, or even a startup that becomes an overnight success. CSNBC reported that in the next few decades, more than $30 trillion in intergenerational wealth transfers will change hands, which means managing these financial transitions will become increasingly important.

In the event you are faced with an unanticipated cash infusion, it's important to have steps in place to help you adjust to having additional funds and take advantage of the opportunity.

Gather your team

Whether you know months in advance or just found out about your financial windfall, your first step should be to gather your team of professionals. Handling significant changes in wealth requires an in-depth look at your full financial picture and knowledge of available strategies, from savings and investing to taxes and protection – because the addition of unexpected funds will almost certainly impact your current financial plans. Advisors to connect with include:

  • Tax professional
  • Wealth advisors
  • Estate planners
  • Attorneys

These individuals can inform you of your options around saving, investing, and spending in the context of your personal situation, and alert you to areas that may become more complicated – such as income tax and your personal estate. Tax planning, at the time you receive the funds and beyond, is an especially critical component to consider in regard to a windfall.

Understand the fine print

Sudden windfalls can be exciting, but they can also be brought on by stressful events like the death of a loved one. In times like these, details tend to fall to the wayside—exactly when they are most important. To help navigate your financial decisions in complex and emotionally heightened situations, understanding the fine print should be top of mind. Your financial team can help you process these details, but don't forget to ask questions and take notes. Some questions to consider include:

  • Where exactly is this money coming from?
  • What is the timing for receiving this money?
  • What are my tax obligations?
  • Is there paperwork or are processes required before I can receive the money?

Develop a short- and long-term plan

With your team and the fine print taken care of, your next step is figure out how you plan to use the windfall. Until you have a plan in place, avoid making large purchases or any significant financial decisions. Planning for the long-term first can help place you in a better financial story at or during retirement. For instance, establish your priorities for retirement, charitable giving, investments and family support. Where will your windfall provide the most benefit? Your advisors can help you analyze where you are, what is most important to you, and where you want to be financially.

After reviewing your long-term financial goals, identify your short-term financial concerns or issues, such as outstanding debt, upcoming expenses, healthcare, and family-related expenses. Make a plan to tackle those after setting aside funds for your longer-term objectives.

Implement the plan

Obtaining an unexpected cash influx can help be a boon, but only if you understand how to react before the funds reach your account. Be deliberate with your choices and make sure you have a complete picture of your financial obligations and opportunities so the windfall works to your financial advantage.

Beth Brown, senior vice president and senior wealth advisor

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UMB Private Wealth Management is a division within UMB Bank, n.a. that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals. UMB Financial Services, Inc.* is a wholly-owned subsidiary of UMB Financial Corporation and an affiliate of UMB Bank, n.a. UMB Bank, n.a., is a subsidiary of UMB Financial Corporation. Banking and trust services offered through UMB Private Wealth Management, a division within UMB Bank, n.a. This report is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. Statements in this report are based on the opinions of UMB Private Wealth Management and the information available at the time this report was published. All opinions represent our judgments as of the date of this report and are subject to change at any time without notice. You should not use this report as a substitute for your own judgment, and you should consult professional advisors before making any tax, legal, financial planning or investment decisions. This report contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, or financial planning advice. UMB Private Wealth Management obtained information used in this report from third-party sources it believes to be reliable, but this information is not necessarily comprehensive and UMB Private Wealth Management does not guarantee that it is accurate. All investments involve risk, including the possible loss of principal. This information is not intended to be a forecast of future events and this is no guarantee of any future results. Neither UMB Private Wealth Management nor its affiliates, directors, officers, employees or agents accepts any liability for any loss or damage arising out of your use of all or any part of this report.

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