Sudden Wealth occurs to a few people annually, but rarely is it comparable to the recent winners of two huge lotteries. These include a $731.1 Million Powerball winner in Maryland, and an even larger $1 Billion Mega Millions winner in Detroit. Our business has personal experience with Sudden Wealth, and it is not all fun and games time. At least, not at first.
Thankfully, we do not yet know either winner’s name. The winners’ names will eventually be revealed, but they will hopefully remain anonymous until precautions can be made for both their personal safety and financial security. Otherwise, as soon as they become known, the winners are likely to get harassed and even threatened with physical harm.
Planning for Sudden Wealth is relatively straightforward when a sizeable inheritance is anticipated. Most often in these cases, the beneficiary is a person from a wealthy environment, with experience in personal safety and money management. However, when unexpected Sudden Wealth occurs, winners can be caught without a clue how to proceed.
We have all seen big winners voluntarily show up on television in a day or two, sporting for all to see their smiling faces and a gigantic check (both in physical and numerical terms). These people generally have no understanding of the “attention” they are about to receive from family, old friends, and new “friends.” From experience, we know that throngs of people are convinced that Sudden Wealth should be shared, with them of course.
Winners have only one obligation to anyone except themselves, and that one is important. The Internal Revenue Service is always ready to reduce net winnings by a significant percentage. Depending on the state of residence, State Revenue Agents will also be lurking around the Lottery offices. Winnings will be reduced before being paid out through withholding of Federal (and perhaps State) Income Tax. What IRS does not do, and does not tell you, is that the actual tax due is MUCH higher than the amount withheld. This amount must be set aside before it is squandered or tied up.
Van Wie Financial has assisted people with their transitions to Sudden Wealth, and we understand that the actual size of the inheritance is not the most important factor. Staying wealthy should be the primary goal of winners. Planning for the perpetuation of wealth begins with a simple concept; don’t spend the principal. That does not mean they shouldn’t live well, as money sometimes does buy happiness, but spending and investing must be controlled.
A qualified advisor can illustrate for you the long-term effects of good planning and investing. If you are ever faced with this prospect, it costs you nothing to call our radio show, or to make an appointment to discuss your situation in our office.
Van Wie Financial is fee-only. For a reason.