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Would you like to win the lottery? Receive a large inheritance? Receive a multimillion dollar sports contract? Who wouldn’t want an unexpected financial windfall? It’s a dream depicted in movie after movie. But for many, this windfall ends up closer to a nightmare than a dream.

 

Let’s start with a few statistics.

Talk with recipients and you’ll also find that sudden wealth, especially inherited or from sale of a business, often causes strife in marriages and other close relationships.

 

Why?

Sudden wealth recipients make a few common mistakes.

  1. Quick, extravagant lifestyle spending. Large homes, expensive cars, and fancy jewelry all make the list of common purchases. But once the money is gone, these luxuries still need to be maintained, insured, repaired, kept up. If your lifestyle exceeds your living, trouble is sure to follow.
  2. Reactive gifts or loans to family and friends. People come out of the woodwork at the news of sudden wealth asking for loans, gifts, support. Should you be generous? Absolutely! Just not without a plan – you’re not an ATM.
  3. Hasty investment decisions. Many feel that since they didn’t have the wealth to begin with, why not swing for the fences? Go all in on that tech IPO or perhaps a friend’s promising business. If it doesn’t work out, you’re back where you started. If it does…jackpot! Often, the risk of substantial loss or investment terms aren’t thoroughly understood.
  4. Doing nothing. While some make decisions too quickly, others are paralyzed by all the options and end up holding their windfall in cash for long periods of time, missing out on years of valuable compounding interest.

 

I received sudden wealth…what should I do?

Despite these statistics and common mistakes, you can avoid these pitfalls and harness the power of your sudden wealth. Here’s how!

  • Slow down. Your sudden wealth is likely to be accompanied by an urge to do something, especially if your wealth came from a family death or loss. You want to buy that house, lease that car, go on the dream vacation. Consider a cooling off period and wait to make major decisions until you’ve had time to plan properly.
  • Know what you know and what you don’t. Build a professional team to guide you, commonly including a Certified Financial Planner, Certified Public Accountant, and estate planning attorney. Not sure how to interview them? Use our guide to interviewing a financial planner!
  • Make a plan. Purchases, investments, and gifts should all align to your big picture goals. Your professional team should explain how your sudden wealth can impact your retirement, college for your kids, debt repayment, and any other important objectives. They can also help you prioritize the funds.
  • Leave values and vision, not just wealth, to your family. We call this a Legacy Plan. Money is easy to lose, but values stand the test of time. If you invest time into teaching future generations about the long-term impact they can have on loved ones and causes they care about, they are far more likely to care about stewarding your wealth well.
  • Plan your gifts. Generosity is a virtue! Consider in advance who you want to support and how much of your sudden wealth you’ll dedicate to people and causes you care about. Planning to give allows you to give more sustainably and feel better about it.
  • Start now. When’s the best time to plan? The answer is always now! You can start today by building healthy habits. Practice living within your means today and sudden wealth will feel more like a gift than a life raft. Discuss how you might use an inheritance if you received it. What goals might you accomplish, and gifts might you give? If you’ve considered how to use sudden wealth ahead of time, it won’t be so unexpected when you receive it.

So, is sudden wealth a dream or a nightmare? It all depends…have you planned for it?

Alterra Advisors - Josh Whelan

Craig Hamilton

Strategic Advisor

About the Author

With over 30 years of experience as a Certified Financial Planner, Craig Hamilton joins Alterra as a sort of paternal figure and has a position of respected “special counsel” to the firm. This role is likely familiar to Craig as one of his four children is also a financial advisor. Mr. Hamilton is also a Certified Public Accountant with a degree in Business from Pacific Lutheran University in Tacoma, where he graduated magna cum laude.

Craig was born and raised in the Pacific NW and built a family here that now includes seven grandchildren. In Craig’s words, “coaching, counseling, and mentoring are in my DNA.” This approach also characterized Craig’s financial career for 20-plus years as an Investment Officer for Russell Investment Services and their later incarnation as The Threshold Group. Throughout that time, Craig approached financial planning as “a critical tool to manage financial priorities and achieve a client’s dreams,” a philosophy perfectly aligned with the Alterra approach.

Craig took an early interest in all things financial — purchasing his first security while still in elementary school. Given his history, it’s not surprising multi-generation investing and legacy planning are his special interest. Listening to the stories of his clients and then helping them along the path to their goals brings Craig personal joy. So, it will likely come as no surprise that Craig was also a college tennis coach for over 20 years. To repeat Craig’s catchphrase, “coaching, counseling, and mentoring are assets” that he will invest in Alterra Advisors.

The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.

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