A couple of weeks ago, I was enjoying a leisurely Sunday morning when I received a call from one of my long-time clients. He needed to speak with me about what to do with his more than $10 million in lottery winnings. I hadn't even had my cup of coffee yet!
I quickly tried to get over the shock and in between each of us randomly exclaiming "yahoo!" and the like, I attempted to provide some reasonable advice.
Even if you aren't fortunate enough to win the lottery, you may need to deal with an unexpected inheritance or other cash windfall. Of course there will be a longer list of items to think about, but here are the five things you might want to consider first:
- Where will you deposit your big cheque?
Decide ahead of time where you will deposit the cheque and make sure you let the bank or investment firm know in advance so everything goes smoothly. Yes, this sounds simple, but it is important to start with a sense of security in knowing the money is actually in your account.
- Allow yourself a modest spending spree
Celebrate your good fortune and carve out a small portion (no more than 5%) of your winnings for some personal indulgence. My client enjoyed walking into his local car dealership and buying a brand new Range Rover within about 10 minutes.
- Stay close to those you trust
The names of lottery winners are published so you will receive lots of attention. Now is not the time to make new friends. There are many sad stories about lottery winners who frittered away their millions by being vulnerable to the charms of strangers and con artists.
- Get legal and tax advice, but only from the best
You will obviously need to make sure that you have a current will in place and, in all likelihood, you will decide to gift some assets to family, friends and/or charity. In addition, there is a good chance you will need to explore the idea of forming an investment holding company. For example, if you own any U.S. securities and your worldwide estate is more than $5 million, Canadians can be subject to sizeable U.S. federal estate taxes on the value of their assets situated in the U.S. upon death. Owning a portfolio through a personal holding company can provide various benefits, but it can also introduce many other considerations. Not all lawyers or accountants are up to speed on these issues -- find one who is.
- Invest wisely
Ideally you will already have an investment adviser who you trust enough to call on a Sunday morning with your news. If not, and you need to search for an adviser, use a professional firm to do this on your behalf, and then get the best investment advice available.