What to Do When You Suddenly Come Into Money

Quick answer

Do nothing fast. Put the money somewhere safe and boring, like an insured savings account or Treasury bills. Tell almost no one. Make no big purchases or investments for a few months. Then find a fiduciary to help you build a plan.

The check clears. Now what?

A settlement. An inheritance. A life insurance payout. A business sale. It might be more money than you have ever seen in one place.

School doesn’t cover what to do next. Your bank doesn’t either. And a lot of people are about to teach you in a way that benefits them.

I’m Jake Hansma, a fee-only fiduciary financial advisor and Certified Exit Planning Advisor. I’ve sat across from people on the best and worst day of their financial lives. Here is the plain-English version of what to do.

Sudden money creates urgency, and urgency is expensive.

1

Pause

The money isn’t going anywhere. Your best decisions will come after the shock wears off.

• Park the money in an FDIC-insured account or short-term Treasuries.
• Don’t sign anything, buy anything big, or lend anything out yet.
• Give yourself a few months to let the emotions settle.

2

Expect everyone to show up

Once people find out, you’ll hear from relatives, old friends, “investment opportunities,” and salespeople. It’s normal. Politely say, “I’m not making any decisions right now.”

Be especially careful with anyone who pushes you to act quickly, promises returns, or sells a product you can’t explain in one sentence.

3

Find a fiduciary

This is the most important decision you’ll make with the money.

A fiduciary is legally required to put your interests first. Many people with “advisor” on their business card are salespeople. They’re paid commissions for the products they sell, and the product that pays the most isn’t always the one that’s best for you.

I know because I used to work on that side of the industry. I sold annuities for a company that paid different commissions on each one, and the pressure was to sell the one that paid the most. Here’s what I learned about old annuities. That’s why I do things differently now.

Ask any advisor these questions:

1. Are you a fiduciary at all times, and will you put that in writing?
2. How exactly are you paid? Fee-only means you pay the advisor directly and they don’t take commissions from products.
3. Do you earn more if I buy a specific product?
4. What does your all-in fee look like in dollars per year?
5. Who holds my money? It should sit in your name at an independent custodian, not in your advisor’s hands.

If you get vague answers, keep looking.

4

Understand the basics of having money

If you didn’t grow up with money, no one handed you the rules. Here are the basics.

• Taxes come firstInheritances are generally not taxed as income to the person who receives them, but inherited retirement accounts often are. Some settlements are taxable and some aren’t, depending on what the money is for. Talk to a CPA before you spend a dollar.
• Build a safety netSet aside several months of living expenses before anything else. It keeps one bad month from becoming a crisis.
• Pay off expensive debtCredit card interest will outrun almost any investment.
• Protect what you haveCheck your insurance, update your beneficiaries, and get a basic will in place.
• Invest simplyLow-cost, diversified investments you understand beat anything complicated. If you can’t explain it, you shouldn’t own it. Keep it simple.
• Keep your money liquidYou should always be able to get to your own money without penalty. Be wary of anything that locks it up.
• Set aside a little to enjoyA small, planned amount of fun money makes the long-term plan easier to stick to.

5

Build a plan before you build a lifestyle

Spending usually rises to meet the money. The question to answer first is: what do I want this money to do for me over the next 10, 20, and 30 years?

That might be a paid-off home, a secure retirement, your kids’ education, or the freedom to change jobs. Decide that, then spend.

A different kind of windfall: selling your business

One of the biggest windfalls I see isn’t a lottery ticket or an inheritance. It’s an owner selling the business they spent decades building.

For many owners, the business is the largest asset they have. When it sells, they go from running a company to holding a large pile of cash, often with a big tax bill and no plan for what comes next. It’s the same situation as any windfall, just with more at stake.

That’s why I became a Certified Exit Planning Advisor (CEPA). Much of my work is with small business owners and trade contractors in West Michigan who are preparing for that day. We plan the exit, work on the tax picture, and decide what the money needs to do long before the sale closes. If a business sale is on your horizon, start the planning early. The best outcomes are built years in advance.

Common questions

What should I do first when I come into money?

Put it in a safe, insured account and avoid big decisions for a few months. Then talk to a fiduciary and a CPA.

Do I have to pay taxes on an inheritance or settlement?

It depends. Inheritances are generally not taxed as income to the recipient, but inherited retirement accounts often are, and settlement taxes depend on what the payment is for. A CPA can tell you where you stand.

What is a fiduciary financial advisor?

An advisor legally required to act in your best interest. A fee-only fiduciary is paid by you directly rather than through product commissions.

How do I find a financial advisor I can trust?

Ask whether they are a fiduciary at all times, how they’re paid, and whether they earn more by recommending certain products. Get the answers in writing.

Should I pay off my debt or invest first?

Generally, high-interest debt like credit cards comes first, after you have a basic emergency fund. Your full situation may change that, which is what a plan is for.

Want a second set of eyes?

Bring your situation to a short call and I’ll walk you through the first moves, what to watch out for, and what a plan could look like. No pressure, and I earn no commissions on anything I recommend.

Schedule a Free Financial X-Ray

This article is for educational purposes only and is not tax, legal, or investment advice. Consult a qualified professional about your situation. [Insert Fiduciary Financial Advisors’ required regulatory disclosures here.]