When Money Changes Overnight: Preserving and Growing Newfound Wealth

Last month, many found themselves entertaining fantastical “what-if” scenarios should they beat the odds and pick the winning Powerball numbers. Despite the low likelihood of suddenly becoming a billionaire, many will spend more time considering such an outcome than they will thinking about the more realistic scenarios that can result in receiving a windfall. Benjamin Connard, CFA, Principal of Carnegie, discussed this very thing with Fox5. 

Whether from an inheritance, the sale of a business or property, a divorce settlement, or insurance proceeds, a sudden influx of wealth can be life changing. While the opportunities are substantial, so are the complexities. Many individuals find themselves unsure of where to begin, what questions to ask, or how to make thoughtful decisions during what is often an emotionally charged time.

Newfound wealth frequently arrives alongside major life transitions, and the combination of financial and emotional pressure can make it difficult to think clearly. That’s why taking a deliberate, structured approach is essential to preserving and growing these assets over the long term. 

A helpful first step is identifying the key issues that need to be addressed. This set of questions should include: 

• What are your goals for this wealth? 
• How should the assets be titled or transferred?
• What are the tax consequences today and in the future? 
• Do your existing estate planning documents still reflect your wishes? 

Answering these questions lays the foundation for a sound financial strategy. While reviewing these important issues, you should consider working with a team of trusted and credentialed advisors who have experience helping clients in their respective areas. 

Financial Planning and Investing for Newfound Wealth 

A comprehensive financial plan is critical when managing new assets. A sudden increase in wealth can introduce decisions that may not have existed before.  These may include:  paying off debt, purchasing real estate, funding retirement, supporting family members, or investing for future generations. Evaluating your assets and liabilities and projecting future income and expenses allows you to prioritize these goals and make informed choices.  

Before investing, it’s important to understand exactly what you’ve received. Different asset types (individual stocks, exchange-traded funds, retirement accounts, real estate, or insurance proceeds) come with different rules, timelines, and tax treatments. Some assets may be available immediately, while others may be distributed over time or held within trusts. 

An effective investment strategy should be tailored to your personal situation and include an assessment of risk tolerance, realistic return expectations, and an appropriate asset allocation. It should also account for any preferences or constraints, such as liquidity needs and tax efficiency. Ongoing monitoring helps ensure your portfolio remains aligned with your goals as circumstances evolve. 

Consulting with an experienced professional is key to helping tailor a plan and build an investment portfolio that works for your unique set of circumstances.  

Tax Implications 

Tax considerations often become more complex as wealth increases. Depending on the source of the assets, you may be impacted by federal or state estate taxes, or even state inheritance taxes. Beyond that, different asset types are taxed differently, and understanding these distinctions is crucial. 

For example, life insurance proceeds are generally tax-free, while inherited assets may benefit from a step-up in cost basis, potentially reducing future capital gains taxes. Income generated from investments or income-producing assets can increase your overall tax burden and affect your tax bracket. Inherited retirement accounts may also require annual distributions, and failing to follow the rules can result in significant penalties. 

This information can begin to feel overwhelming, so it’s important to work with a tax professional who can help you navigate these considerations. 

Legal Considerations 

Legal planning is another essential component of managing newfound wealth. In the case of inheritance, assets may need to pass through probate before they are distributed. Regardless of the source of wealth, it’s important to review and update your estate planning documents to reflect your new circumstances. 

This may include revising your will, powers of attorney, healthcare directives, trusts, and beneficiary designations. Ensuring these documents are up to date helps protect your assets and ensures your wishes are carried out. 

How Carnegie Can Help 

While sudden wealth can open doors, it also introduces a new level of responsibility. Navigating financial, tax, and legal considerations on your own can feel overwhelming. Working with a coordinated team of trusted advisors can help simplify the process and improve outcomes. 

For over fifty years, Carnegie Investment Counsel has helped individuals and families preserve and grow their wealth through personalized investment management and comprehensive financial planning. Working with a Carnegie advisor allows you to move forward with confidence by addressing the core fundamental considerations detailed above. 

For informational and educational purposes only.  

Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488