Every time I purchase a lottery ticket, I allow myself (at least for a few moments) to indulge in some fantasies about how I would spend the winnings. I must admit that the thoughts are not focused on how I would invest the money to ensure for my future financial security. These thoughts are relatively normal when it comes to “sudden money.”
I believe that sudden money syndrome is a very real disease that strikes people when they find themselves in control of a large sum of money. A good rule of thumb may be that if you suddenly find yourself having access to more money than you make in a year, then you may be susceptible to sudden money syndrome.
There are countless stories of lottery winners, professional athletes, plaintiffs and heirs who all come into a significant amount of money and before long are bankrupt. Money attracts family members and friends and it also promotes poor decision making.
I advise anyone coming into sudden money to pause and think about the effect such a windfall may have on their life. People have a unique ability to protect their loved ones from sudden money syndrome (at least when it comes to the inheritance scenario). A trust is a wonderful tool to protect our loved ones from themselves and from others who may have designs on their money.
A trust is an estate planning tool that allows funds to be available for the needs of a beneficiary, while at the same time not giving the beneficiary complete access or control over the funds. The “grantor,” who is the person creating the trust, has the ability to create the rule book for when funds may be spent on their loved one. The Trustee (appointed by the Grantor) controls the distribution of funds. Furthermore, a trust may be for a term of years, until a child reaches a certain age or for the life of the child.
Trusts have many advantages (tax savings, creditor protection, etc.), but protecting our loved ones from squandering (whether intentionally or unintentionally) the assets that we leave for them is a powerful benefit.
There are some excellent resources for dealing with sudden money. The go-to book seems to be Sudden Money by Susan Bradley. A certified financial planner can also be an excellent resource. A CFP can not only advise on investment options, but would also be able to assist with a personal financial plan that could greatly assist with financial decision making. For more information on the financial planning process or to find a planner in your area, please visit www.fpanet.org.