Why I am intrigued is somewhat puzzling. As an accountant, I have come across many people who have come into money suddenly and I have observed first-hand how that sudden fortune can be overwhelming for those without a financial background.
Dealing With Financial Windfalls.
Mr. Tepner describes a financial windfall as “any distribution of financial assets that leaves the recipient with dramatically greater liquid wealth than they had been accustomed to managing before the distribution. The windfall may be the result of a major inheritance, the sale of a business or property, or the proceeds of divorce or insurance settlements.”
In my CA practice, I have seen several individuals come into windfalls. Some by virtue of their business or professional situations are better prepared to handle their sudden increased wealth. In my experience, individuals who sell a business for millions of dollars have often built a strong professional network around themselves as their business grew and typically they will have less problems dealing with the windfall as they already have an advisory team in place. The biggest issue many of these people face is boredom, as they miss the excitement of the deal and the “buzz” of business activity. Many of these people often rejoin the workforce in some capacity.
On the other hand, people who have a financial windfall from an inheritance or divorce are often knocked off balance and they require a strong professional support group to be put in place as soon as possible. The loss of personal and financial equilibrium I have observed in these cases is why I find Mr. Tepner’s advice for these cases compelling. He suggests that “as enticing as it is for financial advisors to demonstrate investment acumen or planning smarts, the best piece of advice you can give to a new windfall recipient is to stop and do nothing. Clients should not make any consequential decisions until they have had time to absorb their new circumstances.”
Stanley goes on to say that his advice applies as much to spending and giving money away as it does to investing the new found wealth. I find this advice bang-on. People who have inherited money or received a large divorce settlement are often still grieving the deceased or the end of their marriage (I will ignore the cynical who say many are waiting for their inheritance at the death bed or the divorced person married for the money in the first place). In addition to dealing with the emotional issues attached to death and divorce, money attracts two different types of unwanted attention: relatives and friends looking for a hand-out and those looking to invest those funds.
consider, since it stops the leeches dead in their tracks.
By the end of six months or whatever period is selected, the recipient will have had adequate time to consider whether they wish to gift, loan or otherwise invest their money. Hopefully they will have taken advantage of some outside counsel and thus, any decision to give money away will not be impetuous.
Dealing with a financial windfall can be stressful. I would suggest that if you or someone you know is in this position, or will be in the future, you do nothing and freeze all decisions relating to money for six months to one year.
The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.