Sudden Wealth: What to Do When You Get an Unexpected Windfall

Sudden wealth can be a blessing, but it can also be a curse if it’s not managed carefully. Whether it comes from a death, inheritance, lottery win, selling a business, or a company IPO, sudden wealth can bring new financial opportunities and freedoms. However, it also comes with new stresses and challenges, the potential to make poor financial decisions due to greed or excitement and unique challenges when it comes to making important financial decisions.

Sudden wealth can fall into your lap due to a variety of events. When sudden wealth comes from a death or inheritance, it can be a bittersweet experience. On one hand, the person may be mourning the loss of a loved one. On the other hand, they may be receiving a large sum of money that can change their life. Grief can also make it difficult to make important financial decisions.

Lottery wins and selling a business are another form of sudden wealth. While it can be an exhilarating experience, it is not uncommon for lottery winners to blow through their winnings in a short amount of time.[1] When sudden wealth is tied to company stock, it is important to diversify investments to reduce risk. While it can be tempting to hold onto the stock in the hopes that it will continue to perform well, this can be a risky decision.[2]

One of the challenges with sudden wealth is the potential to become greedy or overly excited.[3] This can lead to poor financial decisions that have long-term consequences. It is important to take a step back and consider the big picture. What are the long-term goals? How can the money be used to benefit the recipient in the long-term?

Knowing the steps to take when you are faced with sudden wealth is essential to making the most of your newfound fortune. There can be both physical and emotional stresses associated with sudden wealth, and it is important to understand how it could affect you so that you can make the best decisions for your financial future. Follow these steps below to ease the stress and challenges you might face.

Step 1: Take a deep Breath

When you get sudden wealth, it can feel like you are in a completely different world. It can be tempting to get greedy and excited and start spending all your money on extravagant items. It is important to remember that sudden wealth can also bring grief. The death of a loved one or other tragic events can cause grief and it is important to talk to someone about your feelings before making any decisions.

Step 2: Seek Professional Advice

It is important to seek professional advice when dealing with sudden wealth. Financial advisors can help you assess your new situation and create a plan for your wealth. There are many types of financial advisors, who can help you make the best decisions for your financial future. It is important to be careful when selecting advisors and make sure they have the appropriate qualifications and experience right for your situation.

Step 3: Create a Plan

Once you have sought professional advice, it is important to create a plan for the wealth. There are many types of investments you can consider such as stocks, bonds, mutual funds, real estate, annuities, etc. It is important to balance between personal needs and financial goals when creating your plan. While it can be tempting to invest all your sudden wealth in a single asset, such as a company stock or real estate, it’s important to diversify your investments. Diversification can help you reduce your risk and increase your chances of achieving long-term financial goals.[4] Your financial planner can help you identify investment opportunities that align with your financial goals and risk tolerance.

Step 4: Plan for Taxes

Depending on the source of your sudden wealth, you may be subject to taxes. It’s important to understand the tax implications of your sudden wealth and plan accordingly. Your financial planner or accountant can help you navigate the tax code and identify strategies to minimize your tax liability.

Step 5: Protect Your Wealth

Protecting your wealth is an important part of managing sudden wealth. Estate planning is an essential part of protecting assets and minimizing tax liability.[5] It is important to make sure that your assets are properly distributed upon your death so that they are not subject to estate taxes or probate issues.

Step 6: Live Wisely

It is important to live within your means when you have sudden wealth. Set boundaries for yourself and your family so that you can manage your finances responsibly. Consider giving back and doing philanthropy with your newfound wealth. This will help you stay grounded and appreciate the value of money.

Sudden wealth can be overwhelming, but it is important to take a breath before making any decisions that could affect your future. Seek professional advice before making any decisions about investing or protecting your wealth. Create a plan for the wealth that balances between personal needs and financial goals. Protect your assets and minimize tax liability by engaging in estate planning. Finally, live wisely within your means and consider giving back with philanthropy. With careful planning and managing, sudden wealth can be a blessing instead of a burden.

*Disclaimer:

This article is provided by McAdam LLC dba The LRVS Advisory Group for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

Any references made regarding the taxable nature of your investments should not be construed as tax advice. McAdam LLC is not a tax advisory firm; therefore, any tax decisions or assumptions should be made/verified with your tax professional.

Projected savings presented may vary depending on client longevity, and performance of assets over time.

This article is the sole opinion of this individual and is not indicative of the firm’s belief.

Purshe Kaplan Sterling Investments and McAdam LLC dba LRVS Advisory Group are not affiliated companies. This article is provided by McAdam LLC dba LRVS (for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.