Inheriting a Windfall? Here’s What to Do When Friends and Family Ask for Money

Giving money to friends and family

Is giving money to friends and family wise? Not always. Here are our tips for evaluating these types of requests.

For most people, coming into a financial windfall sounds like a dream come true. But it doesn’t always turn out that way. In many cases, beneficiaries of sudden wealth can oscillate between feeling elated and anxious. On the one hand, a windfall may allow you to take care of debts and purchase items that were previously outside of reach. At the same time, you may have concerns about managing and preserving your newfound wealth.

In addition, it’s not unusual for friends and family hoping to benefit from your good fortune to come out of the woodwork following a windfall. While you may feel obligated to share the wealth, doing so may not be in your best interest—or theirs. If you’ve recently gained a significant amount of wealth, here are a few tips on how to respond to friends and family who ask for money.

#1: Don’t Talk About the Value of Your Sudden Wealth

While having new wealth can be a very exciting experience, it’s important not to brag or talk about it too much—especially with people you can’t trust. Some people can have negative intentions and will try to get you to part with your assets through scams or just plain pushiness.

Instead, focus on assembling a team of trusted advisors who can help you manage and protect your wealth. They can also help you evaluate and respond to requests for your money, so you avoid potentially harmful decisions.

#2: Consider Your Own Finances

Before sharing your money with friends and family, ask yourself a few questions about your own finances. For example, are you in a position to loan or gift someone money? Is the amount they’re requesting reasonable? And if you decide to comply, do you know how doing so will impact your finances long-term?

In general, it’s best to avoid giving friends or family any money until you’ve come to terms with your new financial status. You may want to consider hiring a fiduciary financial advisor before making any big decisions with your sudden wealth.

#3: Think About Your Relationship

Consider the relationship you have with the person who’s asking you for money. Has your relationship been close for a long time? Or have you found that since your sudden windfall, they’ve been in the picture more often? Have they been supportive of you and your endeavors in the past? And, most importantly, do you trust them?

Generally speaking, you probably don’t want to lend or give money to someone who’s untrustworthy. Moreover, if the person hasn’t been supportive of you in the past, they probably don’t have your best interests in mind now.

#4: Find Out Their Plans

Be sure to do your due diligence before parting with your money. In other words, find out how your friend or family member plans to use the money you give them and make sure it’s legitimate.

It’s one thing to help someone get back on their feet if they’re experiencing a temporary setback. It’s quite another to give someone money for a new television or risky business venture.

#5: Determine Whether You Can Trust Them with Cash

Some people have serious difficulty managing their finances. No matter how much you help them financially, they always seem to end up back where they started. People who can’t be trusted with cash tend to overspend and ignore their financial obligations. They may even have a long line of creditors after them for overdue debts.

If you know this is true of the person asking you for money, be careful not to enable their bad habits. In these cases, it’s usually best to pay for items directly. That way you’re in control of how they use your money—if you decide to give it to them.  

#6: Don’t Give Money to Friends and Family Expecting to Get it Back

If you decide to give money to a friend or family member, do it with the understanding that you probably won’t see the money again. Even if they say they’ll repay you, telling them the money is a gift can help prevent future strains on your relationship if they can’t make good on their promise.

Finally, remember that the IRS sets certain restrictions around giving and lending money to friends and family. Be sure to consult a trusted financial advisor or tax expert to avoid unnecessary tax consequences.  

Sherwood Wealth Management specializes in the financial planning needs of sudden wealth beneficiaries. If we can help you navigate these conversations and develop a plan for your wealth, we encourage you to schedule an introductory call.