Blowin' in the windfall

MADISON, Wis. (1/19/11)--This month's $380 million lottery drawing brought worldwide attention to the holders of the two winning tickets. Each time a big lottery jackpot hits the news, you can be forgiven for thinking "That could be me!" and dreaming of a spending spree.

More likely you'll get a less newsworthy windfall--found cash, a year-end bonus, a modest inheritance. But even moderate windfalls can lead to costly mistakes if you're not careful. To ensure that you don't blow any windfalls that come your way, the Credit Union National Association's Center for Personal Finance recommends that you start by getting help from qualified advisers. Follow these tips:

Pay the Internal Revenue Service first." Consult an expert--accountant, tax attorney, or other tax adviser--to determine your tax liability, if any. (Your state or local bar association might offer referrals to tax attorneys.) Winnings from gambling are taxable, of course. Insurance settlements and inheritances might not be. If you do owe the government something, immediately set that amount aside before you spend any of the rest.

Look at the whole picture. Almost as common as news stories about lottery winners are the follow-up articles about sudden millionaires who foolishly let it all slip away. Make no rash decisions. Instead turn to a Certified Financial Planner (CFP) for comprehensive windfall advice. A CFP designation means the planner has passed a rigorous exam and has stayed up to date with continuing education. Let the CFP help you consider all your needs, goals, and options and make the most of your good fortune.

Give wisely. Windfalls can put recipients in a charitable mood. Get legal advice before giving money to friends and relatives to head off potential tax issues and hard feelings. Check out charitable organizations through evaluators such as Charity Navigator and Give Well to make sure your donations will be put to good use. And reward yourself, too. It's OK to splurge a little. Just be sure you don't jeopardize your long-term goals when you do.

Keep an even keel. Windfalls can be stressful, especially if they're associated with a death in the family or because of a public event. Excitement, publicity, and the inevitable demands of opportunists and investment swindlers can be bad for your physical and mental health. Before you feel overwhelmed, talk to a trusted personal or family therapist about coping skills.

For more help dealing with a windfall, read "Make the Most of Unexpected Good Fortune" in the Home & Family Finance Resource Center.