Managing a windfall
A windfall, in personal finance, is defined as an amount of money that a person gets unexpectedly. Windfalls can range in magnitude from small additions to an individual's wealth to a significant increase in fortune. Since a large windfall almost invariably means huge changes in a recipient's life, psychological and emotional factors are often the most important factors determining outcomes. The National Endowment for Financial Education advises windfall recipients to take the following course of action.
Do nothing rash. Set aside one year's living expenses and place the rest of the windfall into low risk investments (fdic insured accounts, money market funds, treasury bills) for one year. As it may take as long as five years for the windfall recipient to adjust to a new life, this pause provides a chance for emotions to cool, helps avoid impulsive behavior, and, if warranted, allows the recipient time to put together a team of professional advisers.
"Most financial practitioners agree that well over 50 percent [of windfalls] are lost in a relatively short period of time. NBC News reported that more than 70 percent of lottery winners exhaust their fortunes within three years." -Larimore, Lindauer, and LeBoeuf (2006). The Bogleheads' Guide to Investing. Chapter 15, p.180: Wiley. ISBN 978-0471730330.
Common sources of windfalls
- Legal settlements : Settlements include personal injury settlements, settlements involving workers compensation and settlements of employment discrimination. Settlements are taken as either a lump sum or, alternately, as a structured settlement of annuity payments.
- Inheritances: These can often involve retirement accounts and assets held in trust.
- Gifts: These can range from annual gift exclusions up to the lifetime estate taxation credit limit.
- Lottery winnings: Taken as a series of payments; or as the sales value of payments exchanged for a lump sum.
- Insurance settlements: These can be in the form of death benefits received as either a lump sum or annuity; as pre-death cash surrender values; or as life settlements, the sale of a life insurance policy by the owner to a third party in exchange for a lump sum.
- Retirement lump sums: Usually taken in lieu of a lifetime series of annuity payments
- Sudden increases in income: These can come in the form of bonus payments; stock options; or cashing shares in an IPO. 
Other common sources of receiving large lump sums: 
- A real estate sale
- The sale of a business
- Widowhood and divorce
Managing a windfall
Take your time
Determine your tax situation
Formulate a plan
- Paying down debt