Coming into wealth. Part 3.

Taking care of those who are closest to you

May 11, 2017

The third of a four-part blog about the implications of overnight wealth.

At some point, we’ve all fantasized about hitting the jackpot and living the high life, replete with mansions, sports cars, yachts and exotic travel. But the reality of hitting the jackpot isn’t some glamorous Kardashian-style existence.

Instead of finding themselves in the lap of luxury, 70% of people who come into sudden money are broke within a few years, according to the National Endowment for Financial Education. Many even end up cursing their windfalls.

In this, the third of my blogs about becoming suddenly rich, I want to focus on the impact your new financial status can have on family and friends and how you can manage their expectations without giving offence.

First, the bad news

Let’s get the bad news out of the way first. The effect of sudden wealth on most relationships (family and friends) is, almost always, bad.

Eileen Gallo, a psychotherapist in Los Angeles and a columnist for the Journal of Financial Planning, spent two years studying people who had hit the jackpot through initial public offerings of stock, lotteries or unexpected inheritances.

She found that half of them spontaneously wanted to talk about the money’s impact on sibling relationships, and that nearly all said the effect had been negative. She concluded that many family members feel envy or an astonishing sense of entitlement about a relative’s new wealth, expecting handouts or permanent financial support.

Unfortunately, it gets worse

Another expert on the subject, Dr. Stephen Goldbart, who invented the phrase sudden wealth syndrome, used the following example. He recalled a couple in their early 40’s who experienced sudden wealth after exercising stock options in the mid-1990’s.

They offered to pay for the cost of a private high school for their favorite niece so that she could get a better education than the one offered by her neighborhood’s so-so public school. The girl’s mother reacted angrily, accusing the couple of undermining her relationship with her own daughter.

A checklist of steps

  1. The best thing to do is decide who among your family and friends do you really want to help. Make a list.
  2. Consider carefully how much money you can afford to distribute and to whom.
  3. Do not disclose the total amount you have been fortunate enough to come into, simply the amount available to share.
  4. Consult your wealth advisor about the tax implications of what you’re planning to do before you do it.
  5. Make sure that the gift you’re planning to distribute has no strings attached. A gift is a gift. End-of-story.
  6. Above all, be transparent and decisive.
  7. Tell all the beneficiaries that you love them.
  8. Issue the cheques and leave town for a month.

Finally, take to heart what Spike Milligan, the late comic performer, said: ”Money can’t buy friends, but it can get you a better class of enemy.”

Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604.535.4721.