We've all played the game "If you inherited a million bucks from a long-lost uncle, what would you do with it?" While that was just a game, many people know they may receive a financial windfall at some point -- from an inheritance or selling a business or property. A windfall can feel like a dream come true by opening new opportunities, providing financial security and maybe even helping you fulfill long-held dreams.

However, if you haven't prepared for your windfall or have allowed assumptions to creep into your life planning, the windfall may not have the expected impact. For example, the money could fail to appear, quickly disappear or be insufficient to meet your long-term needs.

Statistics bear out the vulnerability of inherited windfalls: family assets are lost 70% of the time from one generation to the next and gone 90% of the time by the third generation. 

Let's look at how to responsibly plan for your and your family's future while integrating the possibility of a windfall into your overall financial strategy. Doing so will allow your current finances and future windfall to work together to offer you long-term stability and peace of mind.

Step 1: Manage your expectations and avoid over-reliance

The first step is to manage expectations. As optimistic as the potential financial boost might feel, nothing is guaranteed until it's in your bank account. What could happen? Taxes or unexpected expenses could cut deeply into an inheritance. The structure of a trust might affect what you get and when. Uncontrollable market conditions might dictate that your timing is off for the sale of a business, or it might not bring the expected price. Or a natural disaster could wipe out the value of the property you intend to sell.

Even a guaranteed windfall can have its pitfalls. One issue is "lifestyle creep," where you spend more in anticipation of future wealth. Maybe you upgrade your home or take on debt prematurely, assuming you can pay it off later. Then, if the windfall is delayed or doesn't materialize as expected, it can create unnecessary financial strain.

Instead of counting on the windfall, build a strong financial foundation. A plan that doesn't depend on the windfall can ensure stability no matter what happens. And, once the windfall arrives, it will be a bonus instead of a lifeline.

Step 2: Develop a comprehensive financial plan

The cornerstone of responsible wealth management is a solid financial plan. First, set clear goals for yourself and your family by asking, "What do we want to have happen? What values do we want to emphasize in our lives?" What achievements are essential in the short term and long term?" Include key financial targets like funding your retirement, saving for college, paying off debt or leaving a legacy.

As you do this, prioritize 'needs' over 'wants.' For example, paying off any high-interest debt should take priority over discretionary spending like vacations or luxury purchases. Build an emergency fund with three to six months of expenses as a safety net against unexpected challenges. Explore whether you have enough life, disability and health insurance.

Once your plan is established, how could a future windfall enhance it – rather than replace it? Let's say you're on track to retire at 67 at your present savings rate, but your ideal goal is age 64. Could the windfall bridge that gap? Could the windfall make your retirement more comfortable? If you haven't fully funded your children's 529 plans yet, could the windfall help you do so faster?

Also, based on your age and financial status, decide if a portion of your windfall can go to 'wants' and not 'needs.' A fun fund can be a scheduled part of your plan, too.

Treating the windfall as an accelerator rather than as the foundation of your plan lets you maintain invaluable control over your financial future.

Step 3: What to do when the windfall arrives

When the windfall arrives, it's crucial not to make hasty decisions – no matter how long you've waited. Excitement or fear can cloud your judgment and cause you to 'forget' all the planning you put in place in anticipation. Sudden wealth can feel overwhelming. (Just ask lottery winners or star professional athletes.)

Before making any significant moves, park the funds in a low-risk account like a high-yield savings account or money market fund. Give yourself a chance to think clearly and reach out to the professional team you've hopefully put in place. The team that can help you with the complexities of managing sudden wealth might include:

• A financial advisor to help you develop an investment strategy that mirrors your goals.
• A tax advisor to guide you through tax implications and strategies to minimize tax liabilities.
• An estate planner to help you structure your assets to protect your wealth in alignment with your legacy goals.
• You'll also want to revisit your financial plan and see how best to allocate the funds based on your objectives.

Step 4: Allocate the funds strategically

After taking a deep breath and consulting with your professional team, it's time to put your windfall to work strategically. You might consider the following areas for fund allocation:

Tax planning. Windfalls often come with tax implications that can't be ignored. Selling a business or property could trigger capital gains taxes. Inheritances above certain thresholds could be subject to estate taxes. More likely, inherited tax-advantaged IRAs and 401(k)s come with deadlines and tax strings attached. Working with a tax advisor can offer options like setting up trusts or making charitable contributions so you minimize the taxes due while achieving other personal goals.

Debt management. High-interest debt is one of the most significant obstacles to building wealth over time. Part of your windfall can lower financial stress and free up cash flow by paying off credit card balances, personal loans and other high-interest obligations.

Investing for growth. You will want to invest part of your windfall in ways that align with your time horizon and risk tolerance. Growth-oriented assets like stocks might make sense if retirement is decades away. You might focus on preserving capital through more conservative investments if it's closer. Diversifying your portfolio across asset classes can be done with both growth and safety in mind.

Legacy planning and philanthropy. If 'giving back' is high on your list of goals, consider alternatives such as donor-advised funds or charitable trusts. You'll be able to support causes you care about while potentially reducing your taxable income.

Step 5: Consider emotional and behavioral tendencies

Many people experience emotional challenges when they receive a large amount of money despite giving it ample thought. Managing sudden wealth has to do with mindset, not just the numbers. You might be surprised to feel slightly guilty about having more than others around you or not having earned the new wealth. You might find friends or family members pressuring you about loans or gifts. You might even feel overwhelmed by the actual responsibility of managing such a considerable sum.

You'll want to acknowledge any uncomfortable feelings, not brush them aside. Don't avoid asking for support from a trusted advisor or mental health professional specializing in financial psychology if it means your long-term well-being.

Step 6: Monitor and adjust over time

Financial planning isn't 'set-it-and-forget-it.' It evolves as life's circumstances do. You'll want to review your plan with your advisors regularly – before and after receiving your windfall – to be sure it stays aligned with your goals. A significant shift in market conditions could lead to the need to rebalance your investment portfolio, for example. And, if new opportunities arise, you might want to revisit how resources are best allocated.

The key is staying proactive and adaptable. That way, you'll maximize the long-term benefits of your current finances and future windfalls.

Wrapping up

Incredible potential lies in having a future windfall, but it is best managed within the framework of a comprehensive financial plan. You can position yourself and your family for lasting success – including multi-generational wealth – by building stability today while preparing creatively for tomorrow's possibilities. You can turn the opportunity of a windfall into something that genuinely transforms generations to come. All it requires is careful planning and some targeted guidance.

We at WHCornerstone have extensive experience guiding clients into and through the impact of windfalls that arise from a wide array of sources and circumstances. To explore the options available to you as you prepare to receive yours, schedule a call with us soon. We're here to help.