How Would You Handle Sudden Wealth?

When heirs come into a fortune suddenly, their dreams of prosperity can rapidly descend into 24/7 nightmares. A classic 1978 study found that lottery winners had more difficulty finding pleasure in life than control subjects, and that in some respects, even seriously injured car-crash victims were able to find happiness more readily.¹

The good news? Unlike a lottery, an inheritance doesn’t have to come as a total surprise—usually, we have at least some time to think, plan, and prepare. The challenge is making that effort when you don’t yet have the money—and perhaps not yet all the facts—at your disposal.

DIFFERENT INPUTS, DIFFERENT OUTCOMES

Let me share the experiences of two clients: Abigail and Bruce. (These are composite characters based on my interactions with many clients over the years.)

Abigail grew up comfortable but not wealthy and married a man from a similar background. Together they raised three children and built a business valued in the eight figures. They also had the foresight to begin a relationship with AMG in the early days, just when the business was really starting to look like a going concern. When Abigail became a widow, an all-too-common scenario,² she affirmed that she did not want to run the business herself, nor did her children, who were all launched on their own careers.

While Abigail admitted it would be sad to lose the legacy that their company represented, she did not want to assume leadership at this stage in her life and wanted to devote her time to other perfectly valid pursuits, like supporting the charities she cherished and her grandchildren. Based on the planning we had done over the course of their relationship with AMG, she had a plan for this major change in life. Abigail knew how much of a portfolio she needed to maintain her lifestyle and philanthropic goals. She hired a business broker, got a great price from a buyer with compatible values, and put the plan into action, selling the business in a tax-efficient manner. We invested the proceeds according to her needs and have taken steps to begin transferring wealth to her descendants and supporting the charities she holds dear. Through the course of our relationship, we created and implemented a plan that left Abigail feeling more confident and secure.

FEAR AND FORTUNE

By contrast, confidence is exactly what was slipping through Bruce’s fingers when he came to me. His parents died unexpectedly. Initially, the sizeable legacy they left him made him feel financially stable—but the feeling faded fast. It soon emerged that Bruce lacked the knowledge to manage the legacy: The tax bill would be much larger than it should have been, and an epic sibling-on-sibling turf battle was taking shape for what was left. Better late than never, Bruce started the planning process with me that his parents really should have.

Bruce has a decent amount of money to work with, but I fear that his confidence has been shaken by witnessing firsthand how sudden wealth can wreck relationships as easily as it can sustain them—maybe even more so. Bruce is likely to live in material comfort for the rest of his life if he invests appropriately, but he’s also unlikely ever to speak to his sister again. I’m pretty sure that if his parents knew this would happen, they’d have done things differently.

STEPS YOU CAN TAKE NOW

Here are some tips to help you be more like Abigail and less like Bruce—to genuinely benefit from sudden wealth or a liquidity event, whether it derives from an inheritance, your own achievements, or the luck of the draw.

• Plan. If you have reason to expect that you’ll take control of sizable wealth in the future, initiate a relationship with a wealth counselor now so that when the time comes you can quickly scratch “What on earth do I do with all this money?” off your to-do list. Find a wealth manager who is focused on your needs and goals, one who can help you assess your opportunities and create a plan for financial security and success.
• Analyze your values and the people in your life. Sudden wealth can be a burden to those with an unexamined life, who may splurge on big-ticket purchases that compelling marketing or friends and family might suggest would be gratifying but are guilt-inducing or a hassle to maintain instead. Relationships without clear boundaries can become suddenly complicated and fraught. An advisor can help you think through how your values translate to priorities and craft goals for managing and using wealth.
• Be prepared but flexible. No matter how well you have planned, nobody can predict the future. Between Point A on this journey (starting to think about wealth) and Point B (getting notified that a massive wire transfer just hit your account) lots of factors beyond your control may have changed, including tax laws, your health, and market conditions.

Oscar Wilde’s admonition to expect the unexpected is fitting advice when it comes to preparing for sudden wealth. The best thing you can do to prepare is to establish a relationship with a trusted advisor who can help you to thrive in your business and personal relationships no matter how many digits get added to your net worth.

Contact us to learn more.

Notes

1. Brickman, P., Coates, D., & Janoff-Bulman, R. (1978). Lottery winners and accident victims: is happiness relative? Journal of Personality and Social Psychology, 36(8), 917–927. https://doi.org/10.1037//0022-3514.36.8.917
2. According to the US Census Bureau’s 2019 American Community Survey, over 1 million women were widowed in the last 12 months, more than double the proportion of men who became widowers.