You see it in the news all the time: a lottery winner ends up filing for bankruptcy only a few years later, or a business owner has nothing to show for all of her hard work following the sale of her successful business. In the event of a sudden influx of wealth, even a reasonably prudent and intelligent person can suffer financially in the absence of a well-thought-out financial plan. Professional advisors are critical to ensuring newly acquired wealth may be managed to support your lifestyle for the rest of your life and for future generations, not just a few years.
When an individual suddenly comes into wealth, there is an understandable desire to enjoy the moment and perhaps to even share the wealth – literally. Being the recipient of a financial windfall is a dramatic event, one that can challenge any individual as they struggle to adjust to a new lifestyle and cope with newly found wealth. Therefore, it is crucial to act early in order to provide a cushion and a sustainable plan beyond the immediate enjoyment. Ideally, an advisory team should be in place and provide advice prior to the influx of new wealth.
Of course many find it hard to resist the “urge to splurge.” An advisory team can help remind you to pause and not make any dramatic changes in lifestyle or significant commitments until a comprehensive plan is in place. Be reminded that large ticket purchases, such as a new home or boat, are expensive to insure and maintain. Focus on a lifestyle that may be maintained over time, and an investment plan that will generate the necessary income to support that plan. Also, exercise restraint in sharing the news of a sudden windfall.
Regardless of the source of sudden wealth, one of the first steps an individual in such circumstances should consider is to hire a financial advisor. Ideally, the recipient of a sudden windfall should consider putting together a team of advisors to manage their financial affairs rather than a single person. Having a team of advisors affords diverse points of view and expertise, while providing an opportunity for brainstorming and the assurance that all team members prioritize the client’s interests. Members of the team could include an investment advisor, a tax attorney, and a certified public accountant, to name a few.