With all the hype around the Powerball $1.5 billion lottery jackpot, a familiar scenario is brought to mind within the probate process when an individual inherits a large sum of money. People all over the country are currently dazed by the dollar signs of what they’d do if they “win big,” but did you know there is an associated disorder called “Sudden Wealth Syndrome?” It’s a clinical term for the stress that comes with a large financial windfall. It sometimes results in the recipients doing things with their finances that they traditionally wouldn’t do, and often results in them being worse off than before they received the money. When an individual suddenly finds themselves managing more wealth than he or she is accustomed to – whether due to lottery winnings or more commonly due to a large inheritance – there are several important things to consider to avoid the financial pitfalls or, in the worst cases, “Sudden Wealth Syndrome.”
The first step may seem counter-intuitive but research indicates it bears tremendous importance on the ultimate outcome… Do nothing. Take the time to process the change both mentally and emotionally, and put off big financial decisions. In many cases, a minimum of six months is recommended to allow for time to think through all available options and ensure that proper consideration is given to the choices at hand. This is particularly important after the emotional toll of a contested probate process.
Consider taxes and fees if you inherit assets other than cash, particularly before agreeing to any division of the estate. You could have to pay brokerage fees to liquidate a brokerage account, pay a realtor to sell a house, or have taxes on an inherited IRA. A financial professional can help you navigate these penalties and minimize impacts where possible.
Recognize that this is a big change that requires change management. Consult a financial professional to understand how your current state will be altered and how the decisions you make today could positively or negatively impact your growing estate.
Steve Walker is a CPA with over 30 years accounting, tax, valuation, and forensic accounting experience. Prior to returning to practice in 2004, for twelve years Mr. Walker was employed by one of the country’s largest family law firms where he was involved with client cases dealing with characterization, valuation, tax, and financial issues while also serving as part of the firm’s management team as Executive Director. His practice focuses exclusively on family law matters and forensic accounting with an emphasis on characterization and tracing of separate property. Contact him here for more information.