Yesterday we addressed some of the more basic questions you may ask if you found yourself in a sudden position of wealth due to winnings or inheritance. Today we want to focus on the impact your wealth will have on insurance, your estate and gifting.
Impact on Insurance
Unfortunately, being wealthy may make you more vulnerable to lawsuits. Sad, we know, but it’s true. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.
Impact on Estate Planning
Now that your wealth has increased, it’s time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your financial goals. It also means minimizing your taxes and creating financial security for your family.
Do you have a will? Is it up to date? A will is the document that determines how your possessions will be distributed after your death. You should make sure that your current will accurately reflects your wishes. If your newly acquired wealth is significant, you should meet with your attorney as soon as possible.
You should carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. If your children are young, consider setting up a trust to protect their interests and control the age at which they receive their funds.
Impact on Gifts
Is gift giving part of your plan? You may want to give gifts of cash or property to your loved ones, your church or your favorite charity. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family member. Make sure that if you decide to give or lend money to anyone, put everything in writing. This will protect your rights and avoid hurt feelings down the road. Keep in mind that:
Because these issues can become so complex, you should consult a tax professional before making any sizable gifts. The last thing you want is to make uninformed decisions that come back to haunt you down the road.