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What to do if you receive a financial windfall

Whether through inheritance, lottery win or bonus, many people will receive a financial windfall at some point in their life. This guide explains what you should consider if you receive a financial windfall

Written by E4E Editor on 4 July 2023

There are many ways that people receive a financial windfall, some predictable other less so. Knowing what to do if you receive a financial windfall is vital to ensure it does not get frittered away.

For the lucky few, a significant financial windfall may come from a lottery win, while others may be the recipient of a large work-related bonus or through the sale of significant assets.

However, the most common form of significant financial windfall is a result of the death of a loved one and the inheritance of some or all of their estate. While an inheritance itself can be predicted or even known, the timing rarely is and the emotional factor of losing a loved one combined with the financial gain can also put additional psychological pressures on an individual.

Whichever way a financial windfall is received, being able to manage this new financial situation is important – especially if it is a life changing amount. Obviously, “life changing” is a very subjective term and while a windfall may be life-changing for some, for others it may only last a few weeks or months.

This guide has been created to help anybody who has, or is likely to, receive a financial windfall. We also offer a free consultation with an independent financial adviser from our network who will be able to discuss your situation and offer qualified advice on your best course of action.

Stay calm and don't rush to spend any money

Many people dream of winning the lottery and will often fantasise about how they will spend it. However, the reality of such a situation is far less clear cut. After all, you rarely hear about how people will invest their winnings in property or discuss interest busting savings accounts. More often will be discussions about boats, fast cars and holidays.

In all cases of financial windfalls, the most important first step is to think about your objectives and overall financial situation. It is important to understand what you currently owe (taxes, debts, charges) before making any decisions. If you are unsure about your responsibilities or are not sure about how to create a financial plan, you should seek advice from a qualified professional.

Once you know your responsibilities, you can begin to prioritise what to do next.

Evaluate and clear financial debts and tax liabilities

Nearly everybody has some form of debt. Many people will have a mortgage, there are also credit cards, loans and overdrafts.

However, while it may seem prudent to simply clear all debts as soon as you receive a financial windfall, that may not be the case. For example, a mortgage is likely to have an early repayment charge which can be significant and it would potentially make more sense to maintain the existing payments and overpay where possible to minimise any interest on the mortgage.

With other loans and debts, you should evaluate how much the debt is costing and if the debt interest is greater than any interest you may receive, it would make sense to at least consider clearing the debt as soon as possible. Remember though, while having no debt is never a bad thing, using a credit card, but paying it off will ensure that you maintain an excellent credit rating, which may be important in the future.

Speak to an tax specialist

Being the recipient of a financial windfall may incur additional tax liabilities and different countries will have different rules on the treatment of lottery wins, inheritances and capital gains. Understanding your tax requirements in your country of residence as well as your country of domicile is vital to ensuring that you do not incur fines and penalties from the tax authorities.

Also remember that gifting money to loved ones and friends can lead to tax implications if not handled correctly, so before you start handing money out to ease other peoples’ financial pressures, you should speak to an accountant to understand the tax efficient methods of gifting money.

It is possible to get a basic understanding online or by speaking to friends, but you should always seek advice from a qualified tax specialist who will help you understand your tax liabilities and avoid any fines.

They will also be able to walk you through future potential tax liabilities from different investments and offer guidance on how to minimise your future tax bills.

Request an introduction to a tax specialist >

Speak to a financial adviser or wealth manager

Financial advisers often have a bad reputation, however independent financial advice can make the difference between increasing your wealth and losing it through bad choices or poor spending choices.

A financial adviser will consider a wide range of factors incorporating your personal situation and objectives to develop a risk profile and financial report to help you achieve what you want in life. Once these have been produced, you would be offered advice on financial products and services that will help you achieve your financial objectives.

Some financial advisory firms will have minimum investment amounts, often around £50,000 purely because the cost of the advice will not be financially viable vs the potential return. However, many firms will still offer consultations and make suggestions such as using DIY investment platforms.

However, there are also rogue financial advisers whose intention is to make themselves rich off the back of your wealth. We have created a guide to help people spot the signs of rogue advisers which you should read if you are concerned. As with any professional advice, if you are in any doubt, you should always seek a second or third opinion.

Think twice about just spending your money

The largest temptation when a financial windfall us received is to spend, spend, spend. While this can be fun, it should only be considered once you understand your financial plan and have paid any liabilities.

If created responsibly, your financial plan should also highlight how much of your financial windfall is available to spend on “things you’ve always wanted”. However, as the old adage goes, just because you ‘can’, doesn’t mean you ‘should’. Before “splashing the cash” think responsibly about what you are looking to buy and whether you really need it. Also consider potential consequences of showing your wealth – money attracts many types of people (good and bad) and can lead to relationship difficulties.

Make your money work for you

Ever had a dream that you wanted to improve your education? Maybe you wanted to volunteer for charities? Have you ever wanted to live abroad?

Ultimately receiving a financial windfall can make your dreams a reality and, if you were working because you had to, correctly structuring your finances and investing your money may also be able to provide you with an income, enabling you to pursue the career/life choice you’ve always wanted.

Wills and managing your estate

Receiving a life changing windfall also needs consideration regarding your estate. Whether you already had a will or not, it is essential that you evaluate how you want your estate to be distributed when you die – especially if you live or move abroad.

Every country has different rules over inheritance and without a legally binding will in your country of residence and your country of domicile, your beneficiaries may discover that your estate cannot be distributed as per your wishes, creating emotional stress.

You may also be able to structure your affairs to protect some of your estate from unnecessary taxes.

Request a free introduction with an independent specialist from our network

Whether you have already received a financial windfall or are anticipating doing so in the future, you should always get independent, trusted advice before making any decisions. When you live abroad, this is even more important as there will always be increased complexity with it comes to managing any significant sums of money.

Request a free introduction to an independent specialist from our network and we will hand-pick our most suitable partner based on your circumstances and objectives. Our partner will offer a free, initial consultation which will provide you with general information about managing financial windfalls and answer your basic questions.

All the trusted specialists in our network are qualified and have extensive experienced that will enable them to create a robust wealth management plan for you to manage your windfall.

While there is no fee for the initial consultation, if you decide that you wish to proceed with any advice offered, our partner will provide you with a breakdown of any potential fees and you will be free to decide whether to proceed or not. At no point will you be under any obligation to take advice offered.

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What expats say about our experts

The referral by Experts for Expats led me to a couple of advisers that provided exactly what I required. The adviser clarified what would be best for me as an individual with limited understanding of pension transfer implications and confirmed that I was correct in stepping away from what had been put in front of me by previous cold-callers.

Mark S. North America, Pensions