What should you do if you’ve won the lotto or inherited millions? We asked four finance experts

by Admin
May 23, 2024

You’ve checked the numbers over and over.

And yes, each time they have matched. You’ve just won a life-changing jackpot.

This is a hypothetical most of us can only dream of — not for one SA ticket-holder who won the entire $150 million Powerball jackpot last night.

But sometimes it’s fun to wonder: “What would I do if it was me?”

If you ever find yourself receiving an unexpected windfall, whether it be from an inheritance or lotto win, it’s important to ensure you receive the maximum benefit from your good fortune.

So we spoke to four financial advisers to get their tips on what to do if you were to win big.

Give yourself time to think

The first step would be to take a minute to think about the situation, experts told us.

Because the fact is that many people who come into sudden wealth end up losing it.

US research by economists Hankins, Hoekstra and Skiba found that lottery winners were more likely to file for bankruptcy than the rest of the population.

RSM Financial Services Australia director Grace Bacon says this ties into sudden wealth syndrome.

“Winning lotto is everyone’s dream, but coming into sudden wealth can place you under enormous stress,” Ms Bacon told the ABC.

“Sudden wealth offers greater choices, but also greater anxiety because you are forced to make decisions you might not have otherwise made.

“Decisions like ‘do I pay off debt, treat the family to a big trip, or invest for the future?’ are some of those.”

Grace Bacon says you should discuss investment structure with your advisers.(Supplied)

This is why Daniel Albanes, Liston Newton head of wealth and senior financial advisor, says you should avoid making any rash decisions.

“It may be exciting to think about quitting your job, going on a long holiday, or buying a sports car,” Mr Albanes tells the ABC.

“And while it’s not wrong to do any of these things, you do need to take a step back and define your goals over the short, mid and long-term so you can make the most out of your good fortune.”

Think about your relationship with money

Gretel Chiswell, owner and financial planner at Gretel Financial, says now would also be the time to revisit your relationship with money.

“Were you good at managing your finances beforehand? If not, having a million dollars in your account won’t automatically make you financially savvy,” Ms Chiswell told the ABC.

“Many winners go bust because they make the same mistakes on a larger scale.

“Recognise your limitations to manage your windfall wisely.”

But one thing you have to remember is that winning the Powerball jackpot is extremely rare.

In fact, the chances of winning the division one prize in Powerball are more than 134 million to one.

You are more likely to be struck by lightning multiple times than win Powerball.

A 2023 Australian Institute of Health and Welfare study found that 30 per cent of Australian adults gambled on lotteries at least once a month.

Pay off all your debts

Tie up any loose ends.

Your Wealth Consultants financial adviser Kurt Ford says paying off any bad debt, especially consumer debt, is a great start.

“Paying off any immediate bills and unavoidable commitments can relieve you from rushing into any major financial decisions that may not pay off,” Mr Ford told the ABC.

“Paying off your home loan is also a sound strategy, and at the very least, having it in an offset account is a good idea until you have a plan in place.

“Although, it’s important to understand that unless we change our behaviour, we may end up in the same position at the end of the day.”

Financial adviser Kurt Ford.(Supplied)

Put together a support team

Seek professional advice as soon as possible.

A solid financial plan can ensure the funds are sustainable and that you don’t mindlessly make poor spending decisions.

Here are a few professional advisers you should consider, depending on your new-found level of wealth:

Financial adviser
Estate lawyer
Accountant
Legal adviser

Ms Bacon says a qualified financial planner will help you set immediate, medium and long-term plans.

“I suggest a ‘bucket strategy’ so that you have some funds for immediate plans — maybe that family holiday you’ve been dreaming of — to celebrate your win but that still allows for longer-term investments,” she said.

“I also suggest parking the funds in a high-interest-bearing account until you’ve had the time to really think about priorities, and to avoid impulse purchasing while you’re still on the high of seeing your numbers drop.”

Mr Ford says a financial adviser can also put things into perspective.

“We would really need to take stock of where you are now and understand that a lump sum of money won’t fix all your problems and concerns,” Mr Ford said.

“Nor will a large sum of money automatically set you up for life.

“There’s a previous study out there about how previous lottery winners end up poor after winning — you don’t want to become a statistic.”

In 2019, a Sydney nurse won a $107 million Powerball prize.

She shared her advice for the next person who might become the next multi-millionaire.

“Run, don’t walk, to a really good financial advisor,” she said.

“It takes two weeks for the money to come through. I used those two weeks to engage a financial advisor who I trusted.”

And one last piece of advice from Ms Chiswell:

“You don’t need to disclose that you’re a millionaire right away.

“Focus on building a relationship with a planner who understands your needs and goals, then engage them to help.”

Explore investment options

When it comes to investing, there’s a lot to choose from — property, shares, and other assets.

And Ms Chiswell says a diverse range of investments is the key to a successful future.

“Diversifying can help manage risks, ensuring growth and liquidity is always available.

“Make sure to understand the best way to own your assets, whether in your personal name, a company, or a trust.

“This ensures protection from liabilities and allows for tax efficiency strategies.”

And what about superannuation?

“Putting money into super too early will mean the monies cannot be accessed until you meet retirement age or condition of release, so if you’re 20 or 30 that might not be your best option,” Ms Bacon said.

But before you dive into a specific type of investment, make sure you know what you’re specifically trying to achieve and when by, says Mr Albanes.

Decide who you will and won’t tell

And how you tell them.

Wait to spread the news of your winning only after you have a communication plan in place.

Family and friends are the ones closest to you, but they can become a threat to your windfall — you may feel guilty or obliged to help them.

“Within your circle of friends and family, there is always bound to be someone who has financial problems and will be asking you for assistance,” Ms Bacon says.

Try to also avoid seeking financial advice from family or friends, Ms Chiswell says.

“While they might mean well, their suggestions could be influenced by their own interests.”

This is where a financial adviser may come in handy.

They could help you put some guardrails in place to determine: