Sudden Wealth Syndrome — Is this a real thing?
First, as much as this term is thrown around, we are not convinced that it is so prevalent in most sudden wealth recipients that we classify it as a “syndrome,” although we have witnessed some of the challenges that someone faces when they are suddenly personally responsible for more money than ever before. The term that was coined in the ‘90s talks about the symptoms of stress, depression, and anxiety like PTSD, but it has yet to be diagnosed a psychological diagnosis. For advisors like us who have worked with sudden wealth cases for years and have written four books on the various scenarios and challenges of sudden wealth, we have observed certain consistent behaviors but have yet to see “THE SYNDROME.” The good news is that guided by a financial team experienced with sudden wealth cases, most or many of these behaviors, can be greatly diminished.
We define sudden wealth as personally being responsible for more money than ever before.
It can happen through windfalls like:
- Inheritance
- Lottery winnings
- IPO or business sales
- Retirement
- An insurance payout
- A legal settlement
- Divorce
- Professional Athlete Contracts
- Real Estate sales
One of the consistent behaviors soon after a liquidity event deals with the fear of making a mistake. This fear can often lead to not making any decisions at all or “winging it” on their own. Rest assured, after a windfall, important decisions will need to be made. The first of those decisions is to hire an experienced financial team to shepherd the process that is needed in each case. This process can be extensive as they may need a CPA, and estate attorney, a banker, a property and casualty insurance agent, a family therapist, and of course someone that functions like we do at Quartz, where we directly handle Financial Planning, Investment Management, and Life and Long-Term Care insurance, as well as act as our clients’ quarterback to oversee the execution of the entire plan.
Overspending after a sudden wealth life event can also be a problem without good coaching. The problems that overspending creates can be disastrous both financially and personally. In our book Sudden Wealth… Blessing or Burden, the Hamilton’s are fortunate to win the lottery. Prior to the event, their combined salaries of $80,000 supported their family of four. The day they realized they had won $14 million was a day of excitement coupled with a bit of fear of the unknown. However, their spending started out with a bang paying for a cruise for a large group of family and friends. They didn’t realize the big tax bill they would have as they didn’t initially hire professional advisors. Without professional guidance, they didn’t have goals or a budget. Susan Hamilton quickly quit her job, while her husband also quit his job and went to Las Vegas regularly, losing big several times. By the time, they knew what had hit them their fortune was down to $3 million and their marriage in trouble before they considered looking for experienced advisors to help them pick up the pieces. It’s a good example of how large liquidity events can affect the financial and personal lives negatively without professional guidance.
Many sudden wealth situations are due to a traumatic event like death of a spouse or divorce or legal settlement, so supporting the emotional needs of the client are often key to their financial health. To help our clients deal with the psychological effect of the windfall, we often recommend one or more sessions with an experienced family therapist. Family therapists can play a vital role in many sudden wealth situations. Their influence can allow the sudden wealth recipient to focus on the necessary financial and legal decisions they will need to make while working through possible grief, loss, or exuberance, at a measured pace built for their individual situation and temperament.
Sudden wealth happens every day to normal families in many different ways. While some of these events can be traumatic, the emotional and financial challenges each case creates are predictable and manageable. We’ve seen the challenges that families face and have built our firm and our processes around managing and executing for their unique situation.
So, is Sudden Wealth Syndrome a thing? Perhaps at some level for some, especially without the appropriate level of professional guidance throughout the process. Each family is different, and each situation brings different challenges. In our observations, we believe the symptoms of a possible “syndrome” can be greatly reduced if the sudden wealth recipient is guided through the process by experienced and compassionate professionals working in tandem led and coordinated by an experienced “financial quarterback.”
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual or individual security. To determine what may be appropriate for you, consult your financial professional.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
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