How to Manage Sudden Wealth: Steps for a Secure Future

Written by Edward Howison

For many the idea of a sudden influx of money is something that is thought about regularly. However, what is less considered are the steps that should be taken to safeguard this new wealth for the future. Whether it be from inheritance, the sale of a business or an unexpected lottery win, it can be daunting to decide what the next steps are. Forming a structured and holistic plan for your assets can help you navigate some of the potential pitfalls that can occur.

Here’s a closer look at some of the best practices you can put into place to manage and secure a sudden windfall.

Pause And Take a Breath

Individuals can find such a quick change in personal circumstances to be overwhelming, as they deal with the psychological and social challenges of such a dramatic change in finances. It is easy to make impulsive, expensive purchases, which can quickly lead to lifestyle inflation that you’re not financially ready for, making it unsustainable over time. Taking the time to digest and process your new circumstances will help you rationalise your decision-making process.

Professional Advice

Ensuring that you have a team of professionals that you can depend on is an important first step. Forming a relationship with an advisor that you trust can help maximise the future purchasing power of your assets, while navigating some of the complexities that come with sudden wealth.

Whether you are new to investing or have a wealth of experience, it can always be beneficial to get help with managing your assets, both to aid in your decision-making process and ensure that you are acting in a manner that is best for you and your future.

Proper Planning 

It is important to take the time to properly plan your decisions to avoid causing any financial or emotional distress. When deciding what the next steps are with your newfound wealth it is important to consider your emotional risk tolerance. While investments with a high level of return may look more attractive on the surface, they may be considerably more volatile than their lower risk counterparts.

Your risk tolerance is a very important factor in determining what structures and types of investments will be suitable for you. Investment returns are not linear and there will be bumps in the road. Considering how you will feel when your assets experience a downturn is equally as important as planning what they will be used for when returns are high.

Similarly, not rushing your decisions and considering your time horizon is equally important. Many products will have higher rates of return in exchange for extended minimum deposit times. Having a robust cash flow plan helps you determine how much capital you’ll need and when you may need it. It is never too early to think about how you would like your wealth to work for you.

Diversify to Protect and Grow

Whether you have sought professional help or have decided to manage your money of your own accord, diversification should be a cornerstone of any portfolio. Even if you are certain that you have discovered the next Apple stock, having significant portions of your wealth structured in a confined selection of assets can be a very high-risk strategy. Whereas, building a diversified portfolio can help reduce risk across differing market conditions.

Tax 

An increase in wealth goes hand in hand with increased tax liabilities whether that be capital gains or an increased income liability. Seeking the aid of a professional tax advisor will help minimise these potential costs, as well as being able to advise on suitable structures to minimise your tax burden. This could include estate planning vehicles such as various trusts or advising on a personal level how you could best benefit from tax deferred growth.

Think About Legacy and Giving

Sudden wealth opens the door to something more meaningful: leaving a legacy. This could mean setting up generational wealth for your family, establishing a foundation, or supporting causes that are close to your heart. Philanthropy can also provide tax benefits and a deep sense of purpose.

Windfall From Abroad 

Cross-border wealth can involve even more complex reporting requirements potentially running the risk of double taxation depending on the rules of each jurisdiction. Not only this, but you will encounter currency challenges and face questions about the best strategy into the market. Involving a cross-border wealth specialist will allow you to navigate through these potential pitfalls.

Final Thoughts

While newfound wealth may seem like a solution, it can also bring its own challenges. Without proper planning to preserve it, that wealth can quickly fade. Although wealth can give you financial freedom, it is important to exercise that freedom in a suitable manner. Taking the necessary steps to manage your newfound wealth can not only enhance it, but future-proof it as well.

The Legal Stuff

This document may not be forwarded, copied or distributed without our prior written consent.  This document has been prepared by MASECO LLP for information purposes only and does not constitute investment, tax or any other type of advice and should not be construed as such.  The information contained herein is subject to copyright with all rights reserved.

The views expressed herein do not necessarily reflect the views of MASECO as a whole or any part thereof.  All investments involve risk and may lose value.  The value of your investment can go down depending upon market conditions and you may not get back the original amount invested.  Your capital is always at risk. The levels and bases of, and reliefs from, taxation is subject to change. MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.

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