Suddenly Wealthy: Financial Planning Tips for Managing a Sudden Inheritance or Windfall

 Inheritance financial planning

A significant number of people who receive a large inheritance have little to show for it within several years.  Unfortunately, most people are not prepared for the tremendous amount of emotional stress, the changing dynamics of personal relationships and the heightened complexities of financial management that accompanies being suddenly thrust into having wealth.  

Sudden wealth can take an emotional toll.

There’s a vast number of conflicting emotions that can overwhelm those who suddenly acquire wealth.  The newly wealthy often are suddenly overwhelmed with unsolicited advice and a multitude of potential investment opportunities and financial planning tips from friends and family.  This can result in distrust and fear of the true motives for others, even for those within one’s inner circle.  When receiving an inheritance, the loss of a loved one is already a potentially devastating event, but that coupled with possible feelings of paranoia, unworthiness and insecurity for not having earned the money is more than most people can handle.  Young adults informed of being named beneficiary of a large trust may feel resentment toward their benefactor, given that they were kept in the dark about the money. If they’d known earlier, they may have made different life/career choices.

Even many business owners who sell their business are not immune to the emotional perils of a sudden influx of wealth, despite what might be years of financial planning and preparation.  With a pile of cash in place of what was the business they built from the ground up and managed seven days a week, there’s often a sudden loss of identity and purpose in the months if not years after the business sale.

Here are some Planning to Wealth best practices that help people deal with this sort of challenging financial change:

1. Take a Time-Out.  Resist the temptation to jump on immediate investment opportunities, quit your job or buy that expensive sailboat for at least six to nine months.  Those purchases and investments would be emotional financial decisions, and financial management is always at its worst when emotions drive decisions.  What you really need is time to gain some perspective and sort out the emotional stresses of a big inheritance or windfall.  Take a vacation with your family to relax and clear your head.  During this initial phase, it's probably best to keep your sudden wealth relatively quiet and to avoid making any sort of financial commitments to family and friends.

2. Investigate Potential Lifestyle Changes.  As time passes, it’s best to start making a list of purchases and attaching dollar values to them and to start to investigate the viability of larger decisions.  For example, this is the time to rent that sports car you’ve always dreamed of to see if it makes sense to buy it down the road. If you’re thinking of quitting your job and working in the nonprofit sector, it’s best to start by volunteering first. 

3. Build Your Team.  Finding the right mix of tax, legal, estate, risk management, and financial advisors can lay the right foundation for effectively managing your newfound wealth.  The financial tax and legal implications of an inheritance/windfall are complex, and you need to be sure that you have a team of objective and skilled financial advisors with your best interests in mind.  Investigate each financial planner’s background, expertise and approach to ensure that not only that they have the right skills but can provide you with the service you deserve.  Preview the client experience by checking references and by having trial meetings with prospective advisors, and check to see if there is any disciplinary information on the advisor's regulatory body, like the state bar association for attorneys or the SEC's Investment Advisor Public Disclosure website for financial advisors.  As you build your team, it’s important to also learn the basics of investing and financial management.  This will help you have more substantive conversations with your financial advisor and help you successfully manage your wealth.

4. Plan for the Future.  With a team in place, it’s time to translate the windfall or inheritance into sustained lifelong wealth.  The first part of the planning process is getting a clear understanding of what's important to you and what goals you'd like to accomplish with your newfound wealth.  Once you've established these values and goals, you can work to set up a plan so that what you do with your money aligns with those goals and values going forward.  

When financial planning for your inheritance, you’ll think through the answers with your advisors to important wealth management questions.  Will you co-mingle your inheritance with your spouse’s assets?  What will your asset allocation look like?  How much will you afford to spend on a monthly basis?  How do you ensure that your newfound wealth won’t negatively impact your children, family and friends?  Answers to these key wealth management questions will put your inheritance financial planning on the path to success.

Overall, with proper financial planning for your inheritance and a thorough understanding of the potential pitfalls, receiving an inheritance or windfall can provide you and your family with sustained financial security and a bright future.

David Flores Wilson, CFP®, CFA, CDFA®, CCFC is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Wealth Advisor at Watts Capital.  He can be reached at