What would you do with an extra $10,000? Maybe you'd pay off some debt, get rid of some college loans, or take a much-needed vacation. What if you suddenly had an extra million or 10 million or more? Whether you picked the right six numbers in your state's lottery or your dear Aunt Sally left you her condo in Boca Raton, you have some issues to deal with. You'll need to evaluate your new financial position and consider how your sudden wealth will affect your financial goals.

Evaluate your new financial position

Just how wealthy are you? You'll want to figure that out before you make any major life decisions (e.g., to retire). Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you're used to handling your own finances, now's the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you'll want your current wealth to last, so you'll need to consider your future needs, not just your current desires.

Answering these questions may help you evaluate your short- and long-term needs and goals:

• Do you have outstanding debt that you'd like to pay off?
• Do you need more current income?
• Do you plan to pay for your children's education?
• Do you need to bolster your retirement savings?
• Are you planning to buy a first or second home?
• Are you considering giving to loved ones or a favorite charity?
• Are there ways to minimize any upcoming income and estate taxes?

Impact on investing

What will you do with your new assets? Consider these questions:

• Do you have enough money to pay your bills and your taxes?
• How might investing increase or decrease your taxes?
• Do you have assets that you could quickly sell if you needed cash in an emergency?
• Are your investments growing quickly enough to keep up with or beat inflation?
• Will you have enough money to meet your retirement needs and other long-term goals?
• How much risk can you tolerate when investing?
• How diversified are your investments?

Impact on insurance

It's sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

Giving it all away--or maybe just some of it

Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It's a good idea to wait until you've come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:

• If you forgive a debt owed by a family member, you may owe gift tax on the transaction
• You can make individual gifts of up to $12,000 each calendar year without incurring any gift tax liability ($24,000 if you are married, and you and your spouse can split the gift)
• If you pay the school directly, you can give an unlimited amount to pay for someone's education without having to pay gift tax (you can do the same with medical bills)
• If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income 

If you’ve ever felt like you needed to get a handle on your finances, investments, or retirement goals, a personalized financial plan may be in order.  At Fragasso Financial Advisors, every relationship begins with a detailed review of your financial situation.  We take the time to learn about your important financial goals, and we will listen.  Please call us to learn more about how we may be able to assist you.

Copyright 2008 Forefield,Inc. All Rights Reserved

This article is for informational purposes only and not intended as financial advice. Consult your financial advisor to determine what is appropriate for your situation.
Past performance is no guarantee of future results.

If you have any comments, questions or suggestions concerning this electronic newsletter, please email us at fgi@fragassoadvisors.com.

Click here if you do not want to continue receiving Fragasso Financial Advisors eNews.

Visit Our Web site:
www.fragassoadvisors.com

A REGISTERED INVESTMENT ADVISOR
The Retirement Planning and Wealth Preservation Specialists Since 1972
610 Smithfield Street, Suite 400, Pittsburgh, PA 15222

Phone 412.227.3200, Fax 412.227.3210, Toll Free 1.800.900.4492
Fee-based investment management and securities offered through LPL Financial
Member FINRA/SIPC

©2008 The Fragasso Group, Inc., All Rights Reserved