Broker Check
A Liquidity Event

A Liquidity Event

| November 01, 2023

5 Critical Steps After You Win the Lottery…

When the Powerball or Mega Millions jackpots skyrocket, we all love to ponder: “What would we do if we won the lottery?”

The truth is, there are much more realistic financial crossroads that people reach every day than a huge lottery windfall. Maybe you sold a business, exercised some stock options, inherited money from a relative, or sold a piece of property. Each one of these events requires careful consideration of the sudden influx of money.

It Is Important to Know These Simple Steps When You Face a Liquidity Event.

Step 1: Let the dust settle.

A sudden influx of money can feel overwhelming. Your mind will be consumed thinking about desired luxuries, projects and gifts that once seemed out of reach.

Before you spend a dime, take a moment to take a deep breath. 

Recently, I was working with a client who needed to sell some stock options and suddenly she had $1 million sitting in her checking account. She called me. We took a deep breath. Then, we got to work. 

Step 2: Meet with your CPA.

Whenever you have a liquidity event, you need to carefully consider the tax implications. I like to sit down with a CPA and calculate the taxes, determine what may be owed and discuss the deadlines.

For my client who suddenly had $1 million in her checking account, we met with her CPA and realized she faced a $330,000 tax bill. That meant she really had $670,000. 

Without that meeting with her CPA, she may have started planning, investing, and spending $1 million instead of $670,000 and that could have caused her huge issues. 

Step 3: Meet with your financial advisor.

A sudden influx of money could alter your financial plan. So, it is important to sit down with your financial advisor and adjust your strategy.  How do these new assets alter your estate plan?

An advisor can examine your assets and say “you were on track to have X and now you have Y.”

Some of these assets can be put in a trust to shield it from estate taxes and other assets might be gifted or used philanthropically to avoid taxes. This is, of course, a very client specific conversation.

Step 4: Meet with your estate attorney.

After you have met with your CPA and your advisor and established a financial strategy, it’s time to sit down with your estate attorney. 

Your estate attorney can update your estate plan and set up any necessary trusts to protect your wealth for generations. 

Step 5: Invest!

Next, your financial advisor can finally step back in and help you invest long-term.

It is important to determine WHEN you need money and how you would like to use it.

A portion of the money may remain in cash. (Perhaps you have a home improvement project or a small purchase you want to make.) But then you may want to invest some money that you don’t need for 15 or 20 years. 

At Phronesis, We’re Here to Help

The most important lesson here is to surround yourself with a great team. The team at Phronesis Wealth Management in Severna Park can help with any liquidity event that may come your way. By carefully working together and going through each step, you’ll make fewer mistakes and be on your way to creating generational wealth from the event. If you would like to discuss these steps, you can visit to schedule an introductory meeting with us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.