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Navigating a Financial Windfall: Tips for the Unexpectedly Wealthy

Anchin Private Client CenterNovember 30, 2021Mela Garber, Tax Leader of Anchin Private Client

Navigating a Financial Windfall: Tips for the Unexpectedly Wealthy

Numerous articles have been published on family estate planning with an emphasis on strategies detailing tax-efficient ways to move wealth to the next generation. However, there are not many pieces published that address the concerns of the fortunate who are on the receiving end of these wealth transfers. Is this lack of coverage because people fundamentally believe wealth is easy to receive?

In fact, it’s not always that simple. According to Wikipedia, Sudden Wealth Syndrome, is “a term given to a psychological condition where the overwhelming pressures of unexpected and/or abrupt fortune can develop into emotional and behavioral afflictions.” It can be similar to an identity crisis, and depending on the reason for the windfall, it is sometimes accompanied by the grief of losing a loved one. So - what should you do if you find yourself unexpectedly wealthy?

The following steps can help you gain control of the situation:

  1. Assemble a qualified team. Solicit referrals for an accountant and wealth manager from other affluent people. Seek experts that have experience in handling clients similar to yourself. The accountants will assist you in identifying any potential tax issues by developing a strategy for minimizing your tax liabilities. The investment managers will assist you in developing a portfolio that is appropriate for your new lifestyle.
  2. Get your legal affairs in order. You will need to establish or amend your legal documents which may include a will and a revocable trust. As a result, you will need to retain the services of an attorney. Depending on your situation, you may need to do this task sooner rather than later. For example, if you die intestate, state law determines how your property is divided. Depending on your degree of wealth, you may owe a significant tax. If you are married, you can eliminate the estate tax by creating a will that includes marital deduction clauses.
  3. Resist the urge to shout it from the rooftops. Avoid disclosing details about your wealth to others, particularly on the internet. Allow yourself time to consider who you may want to share this news with. Will your family members and friends be envious? Will they anticipate gifts or expect you to pay for their expenses? Will they ask for loans? Quite often, individuals are taken aback by the response of others, and as a result, they may lose some friends or family.
  4. Allow yourself to dream. Create a wish list with everything you desire. Do you want to change your lifestyle? Do you want your children to inherit your wealth? Do you want to make charitable donations? Your expert team will assist you in strategizing and devising the optimal strategy for achieving your goals. These goals should be balanced against a budget or game plan to make sure the newly found wealth will last.

For more information, or to discuss these and other recommendations for recipients of a financial windfall, contact your Anchin Relationship Partner or Mela Garber, Tax Leader of Anchin Private Client at mela.garber@anchin.com.

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