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Unexpected Wealth, Unexpected Challenges

A financial windfall, when handled appropriately, can provide a financial support structure that can last for years to come. Sudden wealth can come from a variety of places, including:

  • Marriage or divorce
  • Sale of a business
  • Insurance settlement
  • Inheritance
  • Company stock options
  • Lottery

Wealthy and wise
New wealth brings major life changes, and the right guidance can make all the difference for the recipient's emotional and financial success. Here are some principles to keep in mind:

  • Recognize the emotional impact of the life change.
  • Understand your family's dynamics.
  • Partner with the right professionals who have processes for working with clients in this situation.

Recognize the emotional impact
Those who become suddenly wealthy often:

  • Lack financial savvy. They don't know what to do with the newfound money and have trouble weighing the recommendations of others. They need to learn the language of finance.
  • Feel guilty. Some feel they haven't "earned" the money and don't deserve it. Others feel guilty because their friends and family aren't wealthy so they don't enjoy their new situation.
  • Experience relationship strain. Friends and family may suddenly expect loans or gifts. This can damage or ruin relationships.

Understand family dynamics

  • Understanding how new wealth changes a family's dynamics in terms of communication and interaction can go a long way toward easing stress.
  • Suddenly becoming the one responsible for a family's financial support can be jarring.

You need to communicate with your family, listen to their feelings about the change, and work together to address concerns.

Partner with the right professionals
Professionals whom you may seek out include:

  • An attorney: To handle estate planning, trust implementation, and other legal matters relative to your wealth
  • A tax professional: To handle complex tax problems
  • A financial advisor: To serve as the coordinator (i.e., the "quarterback") of your wealth planning team
    • An advisor who has successfully guided other suddenly wealthy clients can provide financial education and prepare you to handle the major transitions a windfall entails.

Avoid roadblocks to planning
Once stress is under control, it's time to talk finances. You may face some common challenges, including:

  • Financial familiarity. It may not be easy to understand the choices available to you or how they can impact you over the long term. This could result in an unwillingness to move ahead with a recommended course of action.
  • Risk aversion. You need to learn how much potential risk (loss) to your existing assets you are willing to assume in exchange for potential future gain.
  • Clear communication. You and your family must be on the same page as your financial advisor, voicing questions and concerns as they occur.

Preserve wealth for the long term
You may wish to pass your wealth on to the next generation—and the one after that. The main reason wealth-transfer plans go awry is faulty family communication and preparation.
It's natural to struggle with:

  • How to start the dialogue with the next generation of recipients of your wealth
  • How to handle the real or anticipated discomfort of talking about money
  • How to work through conflicts that may arise when family members have different perspectives

Experienced professionals can guide you through these challenging conversations, fostering family communication and helping you build a lasting legacy.

There's a lot to consider when coming into new wealth. But if you understand the issues, prepare for them, and work with the right professionals, you can ease the strain and focus on the benefits.