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Suddenly Wealthy

How To Deal With Sudden Wealth?


What happens if you suddenly find yourself on the receiving end of a large sum of money? Whether the money comes from an inheritance or winning the lottery, sudden wealth can stress relationships. If not handled properly, it can also put the recipient in a more difficult situation than before. Although you may understand the short-term emotional side of a windfall, what about the long-term preservation of wealth? Steps that should be taken to help cope with the shift of money include:

  • Assemble relevant documents and information
  • Take a time-out (Take time to slow down, evaluate your goals, and make plans).
  • Get organized
  • Go through your assets and debts, pay any taxes and high-interest debts. 
  • Review insurance coverage and think about how you're going to live.
  • Figure out your bottom line
  • What is your net worth?
  • What is your income?
  • What are your fixed expenses?
  • What is your tax obligation?
  • How much remains?
  • Know your priorities (Ask yourself what you want to do, how you want to live, and what future expenses you'd like to have paid for)
  • Assemble a financial team (Once you've had time to cope with the emotional side of acquiring wealth, enlist the help of an adviser, and possibly a wealth psychologist)

We Help You Develop a Wealth Management Strategy

We will help you in setting short-, medium-, and long-term goals in order to preserve your financial well-being into the future. It is important to slow down and manage the various aspects of acquiring a large sum of money.

"Wealth consists not in having great possessions, but in having few wants." - Epictus



 

When Heirs are Imperfect

Passing your estate to an heir with credit problems or a gambling or alcohol addiction might not only lead to that wealth being squandered, but the inheritance could worsen the destructive behaviors.

Of course, you don’t want to disinherit your child simply because of their personal challenges. There are potential solutions that allow parents to control and incent behaviors long after they are gone, ensuring that a troubled child’s inheritance won’t be misused.1

Some Common Approaches

A trust is one idea, since it can pass wealth to an heir while maintaining control over the how, when, where, and why the funds can be accessed.2

When establishing such a trust, you can appoint a trustee, who is typically an independent, third party (e.g., trust company) or family member. Appointing a family member, however, may be fraught with problems. Hypothetically speaking, who do you think may be better able to resist the pleadings of a desperate beneficiary? A close relative or a corporate entity?

Furthermore, the trust can specify the precise circumstances under which money will be paid to its beneficiary, or it can specify that the trustee will retain complete discretion in the disbursement of funds.

Structuring Ideas

Trusts can also include incentives, such as requiring drug or alcohol testing before the funds are paid out, or perhaps, that a lump-sum payment be made only upon graduation from college.

To ensure that an heir is committed to change, lump-sum amounts can be paid out after prescribed periods of time, e.g., five years of sobriety. To encourage your heir to seek gainful employment, the trust might pay out a dollar for every dollar in wages. Alternatively, the trust can be written whereby payments are made directly to service providers, like a landlord or utility company.

Trusts can be flexible in their design, but before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
2. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.

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