Unexpected Wealth Brings Unexpected Challenges.
Interestingly, the word windfall comes from an 18th-century law that allowed settlers to build only with wood blown to the ground by the wind. Wood that was actually cut down became the property of the English monarchy so settlers looked forward to strong winds that allowed them to gather fallen trees and build stronger homes.
“Today, a windfall can still provide similar opportunities for the future,” says Sharon Duncan, a Houston-based financial advisor. “Whether your windfall comes from a marriage, divorce, sale of business, insurance settlement, inheritance, company stock options or even a lottery win, newfound wealth can bring major changes your way.”
The right guidance makes the world of difference for the emotional and financial success of recipients with new wealth. Without a plan, it’s possible that the recipient may find themselves in worse financial shape than before the windfall.
There’s no one-size-fits-all approach that will solve all the issues that new wealth delivers. However, Sharon suggests that there are several shared principles to keep in mind:
Understand your family dynamics
Family plays such an important role in your happiness, windfall or not. The way a family interacts and functions together relative to emotions, communication, and each member’s role are all part of that happiness and bond. “Listen to what your family says about the changes and work together to address their concerns,” says Sharon.
Partner with the right professionals
Advisors who are experienced in dealing with the emotional side of finances help bridge the often stressful transition for clients. “As a financial advisor in a city the size of Houston, I have seen clients suddenly come into vast amounts of money,” says Sharon. “When this happens, we quickly create a process to help keep stress in check so that our client can focus on the big picture and their personal goals.”
Whether you’re a seasoned investor or not, you’ll need to come to terms with risk—namely, with how much risk you are willing to take with your recent wealth. “It’s natural to feel risk-averse when it comes to wealth, which, if you’re not careful, can cause you to delay taking any action at all,” says Sharon.
Preserve wealth for the long term
You may wish to pass your wealth on to the next generation—and the one after that. “You should be aware though that sometimes wealth transfer plans go awry because of problems with financial planning, taxes, or legal issues,” says Sharon. “In order to truly build a lasting legacy with your new wealth, you’ll want to partner with professionals who do this kind of thing every day.
There is 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 many benefits.
Partially authored by Commonwealth Financial Network®.