Suddenly coming into a great deal of money probably sounds more like a dream-come-true than a nightmare, but there can be a lot of downfalls to a windfall. A recent article in the ABA Journal magazine covered extensively the challenges that come with sudden wealth.
Whether from lottery winnings, an inheritance, or a lawsuit, people occasionally find themselves with a substantial amount of money, and if they’ve never handled large sums, the money can quickly disappear. Here are some anecdotes from the article and their solutions:
People have difficulty realizing that they might become a target for solicitation, even from family members. A woman who had recovered $1.5 million in a lawsuit suddenly saw her extended family treating her with uncharacteristic kindness. Because it was her nature to reciprocate, she tried to improve their lives with her new wealth. Her money was gone in fourteen months.
Solution: Secrecy is an ally when dealing with substantial wealth. Parents often worry about their children relying on family wealth and losing a sense of work ethic. You are not obligated to tell people when you have come into a large sum of money. One exception to this is if some state lotteries require their winners to go in front of the press; otherwise, this is personal.
A young man’s parents, who had bailed him out in many situations over the years, were the first to solicit money from him when he recouped $6.6 million after a lawsuit. He bought them anything he could afford, including a house and new cars, and after two years, all the money was spent.
Solution: Surrounding yourself with qualified advisors is a way to avoid pleas and solicitations. You can rely on them to give you solid advice that takes emotion out of the equation. It’s also easier to tell people, “I don’t handle the money directly. You’ll have to talk to my financial advisor/attorney/manager.”
One client attempted to protect his wealth with an irrevocable trust, one that an inexperienced attorney created from his existing, revocable living trust. He had significant tax repercussions as well as being handcuffed to his existing assets. The unfortunate situation also left him susceptible in the event of a divorce.
Solution: There are plenty of attorneys who think they can handle this kind of asset protection, but some can be a hindrance more than a help. Working with an attorney who does not have much recent experience in this area can lead to mistakes that are significantly more costly to unravel than to do right the first time. There are ways to protect your wealth from future creditors, from divorces or your beneficiaries’ divorces, and more. Attorneys who are well-versed in the area of wealth management can create protection for your wealth and for your future generations.
People who have been struggling or deprived often don’t consider the long-term costs of purchases. Taxes, insurance, and maintenance are important considerations that can lead to downfall if not considered in proportion to overall wealth.
Solution: People who realize the significance of sudden wealth are likely to grow their newfound wealth and provide for future generations. They can also turn the money into changes that make life easier and better for their children or for other people in the future. By taking the money seriously, and entrusting it to a few, solid advisors, they protect it for their families.
Because every family is different, there’s no one-size-fits-all plan for protecting your loved ones and your financial assets. If you are concerned about how to handle your money or give it to your loved ones, talk to an attorney you can trust to help you make the best decisions for your family and your future. After all, a great deal of money shouldn’t be a burden; it should be a wonderful asset that you can use to help make your dreams come true!