When someone suddenly inherits, wins, or earns a great deal of money, they might not know whom to trust, where to turn for advice, and how to minimize financial losses and strains on relationships. Read on to learn about common mistakes made by those who find themselves unexpectedly wealthy – and how to avoid them.

Get the Full Picture of What You Have

Though it seems like it should be a relief, many people who experience sudden wealth feel overwhelmed by the challenges of managing the money, its effects on their relationships, and unexpected emotions.

Most people dream of the things they would do if they suddenly won the lottery, inherited a vast sum from a distant relative, or earned a great deal of money from something they created. The reality for those who experience sudden wealth, however, is often more stressful. But there are things you can do – and not do – that will make managing your new money more straightforward and less anxiety-inducing.

First, it’s important for you – and your spouse, significant other, or another trusted family member – to read through all of the legal paperwork associated with your winnings, inheritance, or earnings to figure out the exact amount of money you’re entitled to, when and how you will receive it, and if there are stipulations on how and when you can use it. Research any financial terms you’re not familiar with – and write down any questions that come up along the way so that you can ask a financial expert once you’ve chosen your wealth advisory team.

5 Mistakes to Avoid as You Try to Manage Your New Wealth

You’ll need to protect your money and your mental health as you begin to navigate this sudden windfall. Knowing what not to do at the start of this journey will help set you up for stability.

1 Not Keeping It Quiet

You don’t want to be inundated with unsolicited financial advice or requests for funds from people you know, so try to share the news of your new wealth only with a small number of people you know and trust completely. Depending on the amount you’ve won, earned, or inherited, oversharing can put you at risk of everything from unwelcome attention from estranged family members to lawsuits, fraud, and threats, so be discrete.

2 Not Taking Your Time

Pause before making major purchases. Take time to understand exactly how much you have, plan for its protection, and set some priorities for spending. Give yourself a while to process any feelings associated with the windfall – which may include shock, excitement, and even guilt or sadness – especially if it was the result of a loved one’s passing.

3 Not Considering Tax Liabilities

Lottery winnings or unexpected earnings will be taxed as income and can push you into a higher tax bracket. Inheritances are not considered income, but you may owe federal and state estate tax. Figuring out your tax liability – and ensuring you don’t pay too little or too much – can be complicated. That’s why you should work with a qualified tax professional, like a certified public accountant, tax attorney, or enrolled agent, when you begin managing your
new money.

4 Overspending

Do you tend to overspend? Many people – from lottery winners to athletes and celebrities – find themselves in a financial bind by spending their money too quickly and without much long-term consideration. Working with a trusted financial advisor, find some “safe” spaces to invest your funds – like educational savings plans for your kids, retirement funds for yourself, or a house you really love. It’s OK to treat yourself to a long-dreamed-of trip to Europe or a new car, perhaps, but it’s smart to plan sensibly for how you’ll spend the rest.

5 Failing to Plan for the Future

Work with a wealth management professional to adjust your short- and long-term goals – and add new ones – in light of your new wealth. An experienced financial professional can guide you in planning philanthropic endeavors, including those that will reduce your tax liabilities, investing wisely, managing risk, planning for the protection and eventual distribution of your estate, and saving for a comfortable retirement, among other goals.

Protect Yourself From Unwanted Pressure

A trusted financial advisor can help you postpone or avoid requests for handouts or loans from family and friends and also handle excessive charitable requests, frivolous lawsuits, and even threats made by individuals and organizations trying to get a piece of your wealth. If your new wealth gets media attention, which can happen to lottery winners, you may want to also consider changing your personal contact information, deactivating social media accounts or adjusting privacy settings, signing up for a credit monitoring service and regular alerts, and even hiring security personnel to look out for you and your family members. If you win the lottery and live in one of the many states that does not allow winners to remain anonymous, you can establish a blind trust to claim the winnings and protect yourself. You can create a trust or LLC, name it something that doesn’t reveal your identity, and claim your winnings through that entity.

Working With People You Trust Will Make All the Difference

Working with financial advisors, wealth management experts, and tax professionals from a financial institution you already trust with your accounts can take a lot of stress out of the sudden wealth experience. Get in touch with your institution and add these important members to your team as soon as you find out you’re expecting these extra assets.