Count your money -- and lock it up
Come up with your "end-of-day number," says Robert Pagliarini, the president of Pacifica Wealth Advisors in Mission Viejo, Calif. To get that, take your gross expected windfall, then subtract taxes and any debts. Now you have a workable estimate and can realistically assess how long it will last.
Before making any important investment decisions or purchases, sock away your wealth in a safe place, such as a money-market account or short-term certificates of deposit, advisers say. Set aside a reserve fund that you won't touch. The fund should cover at least 18 months of expenses.
Don't be a sucker
You may find yourself besieged with "can't miss" investment pitches. Let your adviser play the bad-cop role. Tell your uncle who approaches you with a farfetched investment idea that you have to run the idea by your financial adviser.
Richard Hearn, the president of Starcare Associates, a Newport Beach, Calif., wealth-management firm, tells clients to refer all investment ideas directly to him. He then asks them for a formal business plan. "Ninety-nine percent of the time, I never get that proposal," he says. "But it's a way of warding off potentially bad investment ideas."
There also is the temptation to help out family members or friends. If you decide to do that, make sure that you set up a formal contract. Lending money can very quickly destroy relationships if it's not done carefully.
Contracts should be drawn up and signed by both parties. Advisers recommend that the terms of the loan not exceed 36 months.
Plan your estate
One thing to watch for right off the bat: underestimating your tax bill. "Over and over again, people are surprised because they didn't understand how much taxes should be paid on their new wealth," says Melissa Labant, a tax director at the American Institute of Certified Public Accountants.
Double-check your existing will. Update any beneficiary designations to ensure that you won't unwittingly give assets to someone you didn't intend to benefit.
If you don't have one already, set up a power of attorney, a legal arrangement that enables you to hand over management of your finances to family members or friends if you become too sick or otherwise unable to handle your money on your own.
A good option is a "springing" power of attorney, which doesn't take effect immediately, but rather springs into action only after you have been deemed incapacitated.
Next, hire an estate-planning attorney to help you map out a plan to distribute money to your children, grandchildren or other family members. One popular tool is a bypass trust -- also called a "credit shelter" trust -- which helps couples protect more of their assets from estate taxes, says David J. Kautter, the managing director of the Kogod Tax Center at American University's business school.
Here is how the strategy works: When one spouse dies, the trust allows the maximum amount of money that is shielded from estate taxes to go in, with both the remaining spouse and any children the couple may have to be named as beneficiaries.
During the remainder of the surviving spouse's lifetime, the husband or wife can benefit from the interest generated by the trust. Any assets that remain after the second's spouse's death are passed, tax-free, directly to the couple's heirs.
Congress increased the amount that individuals can leave to their heirs or provide as gifts during their lifetime without getting hit by estate or gift taxes from $1 million to $5 million -- at least until the end of this year, when it is scheduled to revert to $1 million.
Still, some parents don't like the idea of setting up trusts for their children that could spoil them. "The idea of a trust-fund kid sends shivers down many parents' spines," Labant says.
One way to avoid that is to set up a trust that limits any large payouts until a child reaches a certain age. For example, some trusts are structured to give children a 10% payout when they reach 25 years old, 20% at 35 years old and so on.
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