Boom! Managing Sudden Wealth - Full Course

Continuing Education for
Financial Service Professionals
Boom!
Managing Sudden Wealth
Inheritance, Home Equity, Business Proceeds
(and other windfalls)

Boom! Managing Sudden Wealth: Inheritance, Home Equity, Business Proceeds
(and other windfalls)
Copyright © 2016 CLIFE Inc.
All rights reserved. Any reproduction of parts or all of this course and its contents by
any means electronic or mechanical is prohibited.
The information in this book is provided for educational purposes only; it should
not be construed or interpreted as providing advice. Agents and advisors should
always seek guidance from their principals and compliance experts in regards to
informing themselves and others about details of the products they sell and other
considerations of their business.
We welcome all feedback and suggestions for additions to the book. Please send
your comments to info@clifece.ca.
CLIFE INC.
6 – 14845 Yonge Street
Suite 139
Aurora, ON
L4G 6H8
www.clifece.ca
Boom! Managing Sudden Wealth provides continuing education credits upon satisfactory completion of an
online test. Please see the website for details or email info@clifece.ca.
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Table of Contents
1. Hello Money! 4
2. Sudden Wealth Sources 7
3. What’s Mine; What’s Ours 13
4. Constraints to Consider 15
5. The Decision-free Zone 19
6. The Proverbial Elephant in the Room 23
7. What To Do First 28
8. Will Power 53
9. Ditch the Debt 75
10. How Much is Enough? 76
11. Give It Away 82
12. Save It 93
13. Invest It 121
14. Insurance Needs, Revisited 136
15. Threats to Wealth 147
16. A Taxing Concern 152
17. Taking Care 160
18. What To Do Next 163
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1. Hello Money!
It is easy to see how receiving a
windfall or receiving a large sum can
be a blessing: the money can solve
problems and fulfill dreams.
Can it also be perceived as a burden?
People can become paralyzed by
decisions about what to do with the
money. Invest? Spend? Save?
Give it away? What’s best?
It can become divisive for a couple who can’t agree on a plan of action together,
and individuals and couples may find themselves being pressured by family
members or friends into taking action that they don’t necessarily agree with.
This situation is best typified by hapless lottery winners who find themselves
broke after their big win. Statistics show that lottery winners file for bankruptcy at
double the rate of the general population (Forbes, The Windfall Effect: What to
Do with Surprise Cash, online) When it’s gone, many have no answer to the
question of: where did the money go?
It’s like Steve Martin says, “I love money. I love everything about it. I bought
some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric
dog polisher. A gasoline-powered turtleneck sweater. And, of course, I bought
some dumb stuff, too.”
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Steve Martin was suffering from a clear case of affluenza: a condition
experienced by people who lose respect for money and the good uses to which it
can be put.
There are many psychological factors that drive the newly wealthy. One theory
states that “money earned without making effort has little value.” This type of
thinking may be the reason some people spend through the sum they receive
and fail to properly manage their windfall.
For heirs, the emotions that come with sudden wealth can be a mix of guilt, loss,
anger, regret, relief and hurt, perhaps stewed with long-simmering family rivalries
and resentments.
Adjustment problems experienced by people with newfound wealth may be
described as “Sudden Wealth Syndrome.” They:
o feel a sense of isolation from former friends;
o feel guilty about their good fortune;
• Guilt is particularly experienced when the money is received in an
insurance settlement paid after the death of a loved one.
o fear losing the money they have gained.
There tend to be four reactions among those who become suddenly rich:
o They want to fight with family and advisers over the money;
o They want to flee the situation and not deal with their newfound wealth;
o They freeze by analyzing all the possibilities that the money brings;
o They appease all requests from others about how they should spend it.
Becoming suddenly rich causes people with new money to behave
inconsistently, overreact, or focus on narrow concerns. Why? Their lives are
changed, and for the most part, people do not like change, especially when they
feel they lose control, and just do not know what to expect or what is going to
happen.
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You are the financial expert who creates that sense of control, and restores a sense of
equilibrium.
You can create a plan, instill discipline on spendthrifts, and develop a financial future for
those who enjoy such fortune as a result of real estate equity, inheritance, or other
means. It is a plan that influences subsequent practice.
You may have some heavy lifting to do in the early part of your relationship. You will need
to instill knowledge and discipline in your client. You may play the role of educator, coach,
and counsellor.
This is your “Big Opportunity.” You have a lot to work with, and with great rewards come
great responsibilities. The point is: when an individual or couple receives a lot of money,
you have opportunities to shine in the short-term and the years to come. Let’s find out how.
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