Broker Check

Wealth Preservation

Managing the Sudden Wealth Effect

New Wealth Creates New Responsibilities

Appreciating real estate values, insurance, and divorce settlements, stock options and inheritances, have created new levels of near-instant millionaires. But how does one manage the new responsibilities that often accompany new-found wealth?

A pre-retiree who inherits property that her parents bought soon after the Second World War or the 20-year manager who has regularly bought company stock and made automatic 401(k) contributions can find themselves with a stratospheric bank account. After they take that trip around the world then what?

When a large amount of money’s concerned, communicate your feelings about it with your spouse and family members. Understanding feelings about wealth is a key concern and should be addressed early. Suddenly receiving a large sum of money can also have drastic emotional consequences. It’s important not to rush into anything.

It is not unusual for members of one generation to view wealth differently than those from another, even if they were raised in the same household. Those who were raised to value every dollar – common among seniors who remember the Great Depression – will usually view wealth differently than someone comfortable carrying a large amount of debt – typically a Baby Boomer. It takes time to adjust. After five or six months, spending habits become more defined. The first six months are critical. People may view you differently. A new set of solicitors will contact you.

That’s why one of the first things to do, well before discussing money or investments, is to divulge emotions. Questions to consider are: Have you ever received money before? In what type of financial household were you raised? How were your finances before you became wealthy? Do you have an adequate cash reserve? How about significant credit card debt?

Consider aligning yourself with a financial advisor who works with a team of professionals to help give you access to the services and products that can help preserve what you’ve earned. Articulate your risk tolerance and long-term goals and before discussing the products that can help you achieve them.

Diversified portfolios with an eye on long-term performance, professional guidance and a healthy amount of real estate exposure have historically helped the affluent preserve what they’ve earned and pass it on to the next generation. While each investment carries some risk, those who’ve accumulated wealth often shift their financial plan from one focusing on accumulation to preservation. Top-of-the-list items often include capital preservation, tax minimization, upgraded insurance and an estate plan.

While an inheritance may seem like an overnight success, chances are it took the dedication of at least one generation to build. It takes a similar mindset to make it last.

The Sudden Wealth Check List

  • Communicate your feelings about wealth with family members

  • Consider enlisting the help of an independent financial advisor

  • Respect the views of others who may not agree with you

  • Prepare to be treated differently by some individuals

  • Do not make any “rush” or “snap” financial decisions

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