You Had a Big Windfall: 7 Things to Expect

You’ve just sold your business, inherited a large sum, or even won the lottery. Now what? Life should be easy, right? In my experience working with clients who’ve encountered all three, life can actually become more complicated and perhaps even overwhelming.

Your life can dramatically change, often in a very short time frame. There are significant, immediate and long-term implications that go well beyond your planning, tax and investment needs. In these situations, you are often experiencing tremendous change. Various studies about what’s been aptly labeled “Sudden Wealth Syndrome” have shown that individuals who experience the sudden change of a big windfall may experience intense feelings of disorientation, loss, anxiety and even guilt.

Professional advisors too often ignore these implications. After all, you’ve just won the lottery! Life is great, right? Yes and no. Yes, you now have a lot more resources at your disposal and a lot more opportunities as a result. However, your entire life as you know it has just changed dramatically.

It is important for you and your team of advisors to recognize these incredible and often intense transitions. In case you have experienced a big windfall, plan to, or know someone that has, here are some things to keep in mind:

  1. A New Identity

Often, your job or business that has served as your identity has just ended. In today’s society, people tend to be seen by their profession—as an accountant, a lawyer, entrepreneur, taxi driver, etc. This sudden windfall typically means the end of that role for you. After all, you just sold the business, inherited a large sum, or won the lottery.

Now you may have full intentions to continue working, but, personally, I have yet to see that happen for very long after the transition. Those intentions likely had more to do with preserving the world you know in a sea of change. You may later realize that your world and your role in it did in fact change.

  1. A New Social Network

For many people, coworkers and industry peers comprise a large part of their social group. New wealth often abruptly ends the employment and industry participation that makes these relationships practical.

In a previous case, the lottery winner directly recognized this concern and went to great lengths to address it. His family came from a proud, blue-collar background. He recognized that the new wealth, if known, would make those relationships in a small community dramatically different. In an extended effort, he constructed trusts to protect his family’s identity when claiming the prize. Unfortunately, he was identified a few years later and, needless to say, his family’s life changed. But on a positive note, those few years bought him the time he needed to come to grips with the impending changes.

  1. Possible Feelings of Guilt or Fear

It is possible that you may experience any of these feelings even if you do not realize it, simply because you “made it”. Beyond a sense of guilt, you may also feel genuine fear. For a business owner, a lifetime of work went into building that wealth, and they often realize they can’t do it again. Oftentimes, business owners shift from that achieving, risk-taking mentality that allowed them to thrive, to one of intense fear of losing what they have. Similar fears are seen in those receiving an inheritance or even winning the lottery. The inheritor often feels an intense need to be a good steward of the monies and legacy that their parents, grandparents or past generations built. The lottery winner, in turn, is well aware of the frequent rags-to-riches back to rags stories experienced by many winners. As investors, we are naturally risk-averse; a big windfall only compounds that sense.

  1. The Control Factor

It is common to feel out of your element and out of control of your future when you experience a big windfall. This is often the most acute with the selling business owner. They often had tremendous control over the success of their business in the past. That direct control may give way to a more passive approach of investment in other people’s companies through stocks, bonds, funds and the like. This, of course, may be a dramatically different experience than they are used to having. The temptation to try to manage those investments like an active business can be quite intense. Too often, that temptation leads to actions with dramatically poor results.

  1. Ruining the Next Generation

Those who experience big windfalls often have very heightened concerns about the impact their newfound liquid wealth will have on their children, grandchildren, and future generations. They realize a big part of their identity and their contribution in life came from the responsibility of having to better themselves through education and hard work. Suddenly, their children or grandchildren find themselves in a position where they won’t need to do either. The absence of this motivation can be very alarming for a parent.

  1. Magnification of Existing Problems

New wealth often magnifies problems that already existed. Marital problems, problems between parents and children and even problems with neighbors can become more intense. Things that weren’t worth fighting about may now have millions of dollars tied to them. With the higher stakes, you may now find yourself needing to tackle those amplified friction points instead of avoiding them.

  1. Increased Attention

After a big windfall, you may experience intense attention from a variety of directions. You may be heavily solicited by extended family members and charities for loans and gifts. Further, you may be highly targeted by others in the financial service industry. All of these people will be trying to pitch the newest, best way for you to make money in the market. It is important that you and your advisor are on the same page.

This intense solicitation can easily make someone second-guess everything they have been doing or were planning to do with their newfound wealth. There are financial industry agents that will say or do anything to gain your attention. Whether what they say is true or untrue, this attention can lead to serious anxiety if left unchecked.

As always, every situation is different, regardless of what created the windfall. Of course, the financial implications are most important, but it is also important to recognize some of the hidden, day-to-day factors of newfound wealth.

 

Check back in tomorrow for Part 2, Big Windfall: Now What, and what steps you and your advisor can take to address some of the considerations mentioned above.

 

 

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Ed Drake
Ed Drake

MSFP, AEP®, CFP®

Ed Drake, MSFP, AEP®, CFP®, is a financial advisor that specializes in serving high-net-worth individuals, families and businesses.

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You Had a Big Windfall: 7 Things to Expect

time to read: 4 min