Key tips if you come into sudden money

If you have just received or are about to receive a substantial amount of money, perhaps due to separation/divorce or bereavement, and in particular if you are not used to dealing with money, do not rush into investing or, indeed, spending it!

Susan Bradley, in her book ‘Sudden Money’, published more than 20 years ago, talks about the ‘Decision-Free Zone’ - the DFZ. This is the time when you shouldn’t make decisions about your money, but instead take time to process the emotions around what has led you to receive the money, such as the divorce or the loss of a family member. It’s the same good advice you would get from the likes of grief counsellors and it is really important when it comes to your finances. Wherever possible, you want to defer making any decisions until you feel you have sufficient headspace to do so.

There are, of course, some situations where decisions have to be made sooner rather than later, an example of which might be the broad elements of a separation agreement, but even in that situation some decisions, such as to how to actually invest a pension share, can be deferred. Bradley recommends making a list of those things that can be deferred and those which should not be.

One decision Bradley suggests should not be deferred is assembling a good team of advisers, which might include a lawyer, tax adviser and financial planner. These individuals can help determine early on what the urgent and non-urgent decisions are. For example, knowing that you will face a tax bill, or knowing what options you have to defer or extinguish a tax bill are important in those early days, as there may well be time-sensitive actions to be taken, such as setting aside the money for a tax bill or, where a spouse/civil partner has died, speaking to a lawyer to put in place a deed of variation to pass assets to the next generation to avoid compounding a subsequent tax bill.

In addition, if you decide to defer making any investment decisions, and want to hold onto cash for a period, it is wise to make sure the money is not concentrated with one bank (or, more accurately, under one banking licence as different banks in a group can share a licence), where compensation is limited to £85,000. The challenges of SVB in recent months have reminded us, if we had dared to forget 2008, that banks are not indestructible.

So, in summary, the three key points, if you come into ‘Sudden Money’, are:

1. Build a trusted team around you. This is something Carbon can help with as we have a network of handpicked specialists we can refer you to.
2. Speak to your advisers to determine if there are any short-term actions that need to be taken, and list others you feel need to be taken and then deal with them.
3. Consider moving into the DFZ to begin to clear your head, build your confidence and look ahead to the next stage in life.

Richard is a planner at Carbon Financial Partners and can be contacted here.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority