Dealing with Sudden Money

Managing large sums of money doesn’t come naturally to most people and yet there are situations where people can find themselves unexpectedly in possession of a very large amount of money either through good fortune as in a lottery win or an inheritance or through hard earned compensation from a personal injuries claim.

Whatever the Situation, Financial Planning Is Always Needed

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Personal Injury Claims

In the advent of receiving a Personal Injuries Claim settlement there will be a number of decisions to make regarding how to properly and prudently allocate those funds. In many instances decisions will need to be made in respect of ongoing care costs and the future loss of income. Having a Financial Planner assess and advise on these nuanced considerations can prove invaluable at a time when your thoughts may be rightly on other matters.

Lottery Winners

A Lottery win that leads to receiving a life-altering sum of money is often a once in a lifetime event. There will likely be many opinions within your circle of family and friends about what you should and shouldn't do. Many Lottery winners in times past have confessed to feeling understandably 'overwhelmed' by this sudden shift in good fortune.

You will likely spend a little and save a little, but our core advice is this. Don’t be taken in by those individuals who promise high returns or tempt you into investing into something you don’t understand. Take the time to figure out what your long-term hopes are. But before that, use a cash management strategy that protects your funds while you contemplate your future. This is the uppermost importance. After that, a steady approach to your thinking and advice from an experienced and professional is what is needed.

Managing Inheritances

It is very common for inheritances, often themselves the result of a Trust invested in a variety of funds, to be reinvested again by the beneficiary.

From experience we have found that when third parties become aware that individuals have large sum sums to invest, it is not uncommon for propositions to apply funds to private equity, personal loan notes or geared property investments to be promoted.

Unfortunately, these type of assets have poor or no investor protection and are generally unsuited for all but the very high risk investor. Our familiarity with similar situations is that most people who have Sudden Wealth are not high risk investors, will never be and should never be.

The key in all instances is to have a financial plan. This is achieved by focusing on what is really important to you and your family at a personal and emotional level.

Questions you may have..

A person who gifts money or an inheritance to a family member or friend is legally known as a Disponer. A family member or friend, known as the beneficiary, can receive gifts up to a set threshold value over their lifetime but once this set value is exceeded any sum received above this set value is liable to Capital Acquisitions Tax (CAT) the current rate of which is 33%. The thresholds applied depend on their relationship to the disponer.

The calculation of CAT due is based on the date of gift or inheritance, which determines the relevant threshold and rate of tax, and the valuation date, which determines the relevant pay and file period that will apply.

For further details of the CAT thresholds, rates and aggregation rules please visit the Revenue Commissioners’ ‘Gains, gifts, and Inheritance’ webpage at the following link:

https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-groups-and-group-thresholds.aspx

This type of question could be answered in a number of ways. The factors of consideration in this decision would be your own personal conviction, the sum of money won or inherited, and your future plans to continue in employment or to retire early. As an example, if your outstanding mortgage was €200,000 but you decided to continue in your present employment upon receiving your windfall then you might want to give consideration to investing the sum in a tax-efficient financial product that has the possibility of attaining a higher capital appreciation than a deposit account. It is important to remember that the higher the potential return the higher the possible risk of seeing a fall in your money over the shorter term as well as possibly losing some or all of your money in the longer term.

In tandem with this approach, you could also increase your monthly mortgage payments in order to reduce your interest payable over the term.

If on the other hand you decided to retire upon receiving the windfall then you may be best suited to paying off the mortgage in full, but only do so with an eye on your ongoing annual retirement costs, both the known and unknown. As both the sum involved, and your personal circumstances will be unique to you it is best to consult with a qualified Financial Planner to plans these steps.

The Old Age pension (also known as the State Contributory Pension) is not means tested and at the time of writing is paid to people from the age of 66 who have the required amount of PRSI contributions accrued over their working lifetime. This means that you can have any level of wealth and still receive the old age pension.

Information on the contribution thresholds for entitlement can be found at the following link:

https://www.gov.ie/en/service/e6f908-state-pension-contributory/

The issue of Means Testing is only relevant if one does not have much personal savings and is not earning any money. If you have just come into substantial funds suddenly it is quite possible that you might not qualify for Means Tested State Pension.

Using Our Services

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As one of Ireland’s leading financial planning firms based in south Dublin, there’s very little we haven’t encountered to help our clients prepare for. Our experience, technical knowledge and willingness to see things from your perspective means that whatever you have in mind for you and your family’s future we can help you plan the best way to get there.

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