How to manage a financial windfall

8 tips to make the most of sudden wealth

Winning the lottery. Selling your business. Getting a large bonus.

While it may not happen frequently, receiving a financial windfall can be life changing – if you take your time and manage it correctly. Whether your influx of funds is expected or unexpected, here are some tips to help you make the most of it.

1. Stop, think and breathe

First things first, take a deep breath and let it sit. Don’t rush into any quick decisions. Take stock of your current financial situation, including any outstanding debts, savings and financial goals, and begin to formulate a plan. Thinking before acting will help you resist the tendency to spend your windfall right away.

2. Keep it quiet

Unfortunately, along with your newfound wealth comes susceptibility to fraud and scammers. One way to stay safe is to keep a low profile, particularly if you’re dealing with a large amount. Consider keeping your news confidential (or share it only with a trusted few) and resist the urge to share it on social media.

3. Surround yourself with a trusted team of professionals

Take stock of your new financial reality and work with a group of experts you trust. We can partner with you and your accountant or lawyer to re-envision your short-, medium- and long-term goals and adjust your plan accordingly.

4. Create a wealth plan

Together we’ll create a wealth plan incorporating your windfall and run different scenarios based on your short, medium and long-term goals. Creating a plan won’t just give you peace of mind, but it will also indicate how much of your windfall you might be able to designate towards a little splurging. Who doesn’t want that?

5. Plan for income taxes

Depending on the source of your windfall, you may be subject to Canadian income taxes. Here’s a quick overview of what you could expect:

Source of windfall	Income tax liability
Lottery winnings	In Canada, lottery winnings are not taxed
Inheritance	Might include assets with accrued and untaxed capital gains that could trigger a significant liability for an estate
Bonus	Considered “additional” income”, i.e. money you earn over and above your regular paycheque In Canada, this income is subject to income tax, just like your regular salary
Severance package	Taxed as regular employment income, with the usual tax deductions (e.g., CPP or QPP contributions, EI premiums)
Sale of a business or property	Sale is generally taxable as a capital gain based on the difference between the sale proceeds (fair market value) and the cost (adjusted cost base) of the assets or shares which are subject to the disposition Sale of a business

Proper planning can help you minimize tax liabilities and maximize the impact of your windfall. Be sure to consult with a tax professional to understand your obligations and find the best tax strategy for your situation.

6. Think about life insurance

Having life insurance in place can help reduce the stress of wanting to preserve as much of your windfall for your heirs as possible. It allows you to celebrate your good fortune but at the same time it’s a mechanism to ensure your estate will not be overly eroded – and it may even increase its value.

7. Consider philanthropy

Passionate about giving back to your community or supporting charitable causes? Consider allocating a portion of your windfall towards charitable giving. Research organizations or causes that resonate with you and explore ways to make the most meaningful impact. Philanthropy may also generate potential income tax savings.

Incorporating life insurance as part of a planned giving strategy can help you boost your giving. Not only that, but you can use the insurance to restore that donated capital to benefit your heirs.

8. Celebrate responsibly

Don’t forget to plan some fun into your financial projections. Spending a portion of your windfall can be reasonable, especially if it’s for something meaningful or to improve your quality of life.

Want to learn more?

Listen to this episode of our Conversations on Wealth podcast: “Managing a financial windfall.”

Talk to us.

We’ll help you make sure you have a solid plan in place for managing the rest.