Most of us know somebody who has “struck it rich”. Whether that be a high income promotion, winning the lottery, a divorce settlement; or an inheritance. Sudden Wealth Syndrome is a typical effect after a financial windfall. It can cause a sudden and unexpected life transition for individuals and families.
For the most part, many people are not prepared or ill-equipped to deal with the life changes that come along with a large influx of money. Emotional and family stress can become a large part of any financial windfall. The reality is, money can change a person. There are many stories of large sums of money destroying relationships and outlandish habits leading to total financial ruin.
In my business, I am privileged to have many clients who have experienced a financial windfall. Many of the clients I have that have come into a large amount of money are from inheritances, usually through an estate. Proper management of this money can lead to financial and emotional success over the short and long term.
Here are some tips for managing a financial windfall!
- Don’t do it alone – Reach out to a professional advisor! Interview many advisors and get to understand their core values and how they operate. Check for credentials and ask about their experience handling financial windfalls for their clients.
- Figure out your tax position – Is this inheritance tax free? Often financial windfalls can have tax & estate burdens associated with them, especially if they are inheritances. A tax professional can help you figure out if the tax man is owed!
- Develop a plan – Far too often I see people who have come into an inheritance decide that they are going to do their planning later. They might have a few items that they want to buy or a few vacations to take first. At what point do the vacations or luxury items stop? Develop a plan right from the start and you’ll know how much to save and how much to spend.
- Spend Some, Save Some, Give Some – Pretty self explanatory, with the exception of giving. Philanthropy can be a wonderful, emotionally satisfying experience, especially if you have come across an inheritance or financial windfall. A great advisor can help you make the most of your planned giving. There are some amazing financial structures that can be put into place to multiply your planned giving
- Be wary of friends or family you never knew you had – People who have come into a large amount of money are typically prey for unscrupulous characters. Be careful when giving or lending money to others or engaging in get rich quick schemes. You don’t want to be on the other end of a lawsuit.