Occasionally, we may receive a windfall – a large, unexpected sum of money.
In most cases, these windfalls come from inheritances, usually from parents or grandparents.
The fact is, the money usually comes as a result of hard work and a series of prudent investment choices over time. This gift implies a level of responsibility to honour the legacy of the generous benefactor and to take certain steps to safeguard the inheritance. Return of your investment is equally, if not more important, than return on your investment.
What you Need to Know
The best advice when receiving an unexpected, or even expected, lump sum of capital is to do close to nothing for the time being. Hasty decisions can quickly lay waste to an estate.
It is usually best to deposit the funds into a liquid, low-risk investment, while you do some planning. There are a number of high interest funds available that pay much higher interest rates than leaving the money in your chequing account!
Honour the gift first by receiving it well. It is wisest to continue to live as if the funds had not been given while you determine what should be done with them. You have likely already been doing that since the settlement of an estate takes time.
The ‘terminal return’ will have been filed with Canada Revenue Agency (CRA) and eventually a clearance certificate will be issued by CRA. The arrival of the clearance certificate typically takes three years or more, and if you have received funds through inheritance it is very unusual to be rapid or a surprise.
Depending upon the amount, your existing situation and your goals develop a plan to best utilize this wealth. The options are endless: topping up your retirement savings, purchasing a cottage, cutting back on work, funding special projects, travel etc.
Your plans may ultimately involve making a major purchase. Because we know that this may have a big impact, we have built a very useful worksheet called The Major Purchase Evaluator. You can click below for a free copy.