Financial Planning for Windfalls and Liquidity Events

Windfalls and other liquidity events come in many forms. And, like most people, you’ll probably receive one or more of these, such as:

  • An inheritance or life insurance payments
  • A divorce settlement
  • The sale of appreciated stocks, artwork, collectibles or a home
  • Exercising stock options or the vesting of company stock
  • Receiving deferred compensation
  • Remuneration for winning or settling a lawsuit against another person or company

Whether it’s money or stock you’re expecting or a surprise gift of cash, you’ll want to resist the temptation to spend the entire windfall on extravagances. For one, they won’t protect your long-term financial security. And more importantly, you may receive a hefty federal or state tax bill.

That’s why savvy families and individuals work with a fee-only fiduciary financial advisor, in partnership with your tax advisor, to ensure that you can enjoy some of your windfall today while investing some of it for financial security tomorrow.

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Key windfall planning questions a financial advisor can answer

  • Will I have to pay income taxes for any windfalls I receive? If so, how much?
  • How much of my windfall should I be spending versus saving?
  • Will my windfall let me retire early?
  • Should I keep or sell the shares of company stock I’ve been granted?
  • How should I invest the windfall portion I’m not going to spend?
  • How can I shield investment earnings related to my windfall from taxes?
  • Can I use some of my windfall to support the charities or causes I care about most?
Windfall Planning Challenges

How a fiduciary financial advisor in the Wealthramp network can address your windfall planning challenges

Serving as your financial advocate, your financial advisor in the Wealthramp network works directly for you. Collaborating with your tax advisor, they can show you options aligned to your long-term financial plan for any expected or unanticipated windfalls or liquidity events that occur throughout your life.

Their guidance can include:

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Figuring out if your windfall might enable retirement earlier than you planned

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Planning for the federal and state tax impact of your windfalls

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Recommending what portion of your company stock to sell in a tax-efficient manner to reduce overconcentration risk in your portfolio

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Incorporating current and future windfalls into projected cash flows that give you an idea of how much of it you could safely spend today without jeopardizing your future financial security

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Splitting the investable portion of your windfall into separate pools for specific financial objectives, such as retirement or college

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Creating a tax-advantaged charitable giving strategy that lets you use some of your windfall to support your favorite organization today and after you’ve passed on

Don’t make costly mistakes with your windfall

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The biggest windfall and liquidity event planning mistakes

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Failing to minimize the tax impact of windfalls and liquidity events

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Exercising stock options and selling shares inefficiently, which could result in costly capital gains taxes that could move you into a higher income tax bracket

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Increasing risk in your portfolio by keeping too much vested company stock

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Giving into your impulses to spend your windfall on luxury purchases without helping you achieve financial independence sooner than you expected

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Keeping too much of your windfall invested in cash rather than a targeted mix of stocks and bonds that can significantly grow in value over time

Work with an expert to avoid these windfall planning mistakes

We won't sell your data. You decide which advisors to talk to. And you won't receive any pushy sales calls from Wealthramp.

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