SUDDEN WEALTH MANAGEMENT
Updated: May 2, 2020
There is nothing like the feeling of sudden wealth infusion. That euphoria is accentuated when the amounts are six, seven, eight digits or more. Of course, every coin has two sides and, typically, the greater the amount you receive, the greater your stress. In fact, there is even a stress-related disorder called “Sudden Wealth Syndrome.” Stress can lead the recipients to do things that ultimately threaten their good fortune and may leave them worse off than before they received the money.
We have all heard stories about the lottery winners who went broke, or the former professional athletes or entertainers who struggle to pay rent. For those that have the luxury of time to plan for the wealth infusion that may result from the sale of a company or property, or perhaps a retirement payout, taking the time to plan will help ensure an ideal outcome for your family’s future, and tax, estate and succession matters.
Know the Details
Someone can hold a lot of wealth on paper, but until you can convert that into cash, the opportunities differ in how you can use that wealth. What may appear to be sudden wealth require a closer look to truly understand the economics of the transaction. Take the time to dissect the transaction. Sit down with your significant other and read carefully,every piece of paper associated with the windfall. Highlight areas that you don’t understand. By doing this, you will be better prepared for the next step.
New Lifestyle Balancing Act
On the home-front, consider the transaction’s likely effect on income, benefits, disability and life insurance, retirement savings, dividends and taxes. Ideally you will have a good understanding of your current situation, as it is best to plan ahead and devise strategies for managing sudden wealth. Regardless of the details around the sudden wealth opportunity, few elements should be a complete surprise, if you have allowed for a range of possibilities and aligned your goals and strategies.
Develop a Comprehensive Wealth Plan An in-depth plan that is customized to your unique situation will ensure that all facets of your financial future, including preservation and transition of wealth, are identified. However, it should not be forgotten that your needs come first. The factors are more than just financial measures. You will need to be clear on the amount of income you would like, but also the type of life you wait to enjoy and, if applicable, the inheritance or charities you hope to impact. Depending on the amount of wealth, you move from sufficiency thinking to stewardship of the assets.
If you have a solid understanding of your current financial situation, family and goals, and understand potential event outcomes through what-if scenarios you have considered through the Wealth Planning process, then you can respond quickly when such an event occurs.
Avoid Large Expenditures
Do not make big expenditures until you are satisfied with the advice you have obtained with your new financial position. Take care of taxes on the gain, pay down debts, take a small vacation, but don’t make too many changes at once. Consult with your professional team. If the amount you have received is substantial relative to your prior situation, take the time to consider your good fortune.
Coming into a large amount of money might seem like a great excuse to kick back and live the easy life, but with more money can come more problems. Be sure to use this advice when deciding what to do with your new found wealth.