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January 14, 2021
You’ve just received a significant sum of money! Chances are you’re feeling both excited and overwhelmed. Your head is spinning with ideas, but you’re not sure where or how to begin. The good news is there’s no rush. The best thing you can do is take your time—embrace the moment and create a plan that will help you preserve, grow and protect your new wealth while avoiding irrational decisions.
This guide walks you through the planning process and assembling your advisory team. It also highlights common financial mistakes and tips for avoiding them.
Your first impulse may be to spend or make promises to others, but that may not be in your best interest. Even if you’re used to handling your finances, now is the time to be careful. Sudden wealth can turn even the most cautious person into an impulse buyer. It’s important to limit the urge to spend or invest until you have a plan.
A well-designed financial plan provides a framework for managing your redefined financial life. It helps you balance competing priorities and understand how different actions can impact your goals so you can make informed decisions. It can also help you minimize potential income and estate taxes and clarify what you want to do with the funds. Below are key questions to consider as you start the planning process:
Addressing the windfall upfront is essential for managing your new wealth effectively.
You’ll likely need to formulate a new investment strategy with your investment advisor’s help.
Being wealthy exposes you to new and unique risks (lawsuits tend to look for deep pockets).
Estate planning is about more than transferring property. It’s about minimizing the short-term burden and maximizing the long-term positive impact on your heirs.
You may want to give gifts of cash or property to loved ones or charities. Formalizing your plan will help you evaluate requests and say “no” when appropriate.
Once you have your plan, it’s essential to review it regularly. An effective financial plan is one that evolves with your life. You’ll likely need to update it as your personal and financial circumstances change.
Fortunately, you don’t have to create, implement and monitor your plan on your own. Experts are available to help you with all of your financial needs. If you don’t already have them, now would be a good time to engage the following professionals. They can work with you to address the financial, legal and tax implications of your new wealth.
Remember, YOU are the most essential member of the team. Your needs and objectives drive the conversation and the actions taken. Be sure you work with competent and knowledgeable professionals with whom you can have an open and honest relationship.
Assess the capabilities of the professionals who are currently serving you. Your financial needs are more sophisticated now. Are your advisors capable of addressing these needs? Are you confident they will act solely in your best interest? If not, it’s time to find advisors who will. Ask for referrals from trusted family members, friends, or colleagues.
We’ve all heard the rags-to-riches-to-rags stories of people who acquired sudden wealth and then lost it just as fast. In many cases, it’s because they made one or more of the following mistakes. With comprehensive financial planning, objective advice and a trusted advisory team, you can keep from being one of them.
Many sudden wealth events cannot be predicted. However, to the extent you can anticipate such an event, like a business sale, you should prepare ahead of time. The earlier you seek qualified advice, the greater the opportunity to minimize potential income and estate tax consequences and set yourself up for long-term success.
After reading this guide, you likely have more questions. That’s natural. After all, money doesn’t come with instructions and receiving a financial windfall is probably one of the most significant events of your life. Cerity Partners is here to help guide you through the planning and decision-making process. Our advisors have extensive knowledge of and experience with all aspects of wealth management.
Together, we’ll evaluate your options and choose a course of action that keeps you moving forward towards the future you envision.
Contact us to start the conversation today.
Please read important disclosures here.
Matt is a Partner in the Cleveland office and has over twenty years of experience working with families and business owners as a financial planner...
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