Sudden Wealth: Preparing for a Financial Windfall

Are you ready for when your inheritance, business, stock sale, life insurance or ESOP proceeds arrive in your account? When major liquidity events like this happen, decisions must be made that will impact the rest of your life, as well as future generations.

First, what is a liquidity event? “A liquidity event is an acquisition, merger, initial public offering or other event that allows founders and early investors in a company to cash out all or some of their ownership shares,” according to Investopedia. There are many considerations before taking the leap to selling your business or ownership shares.

Receiving a large inheritance, taking an ESOP distribution, or winning the lottery also present similar considerations and opportunities. Sudden wealth situations are life-changing, emotional, and stressful. However, if you know what to do there are also many opportunities you can take to make the transition easier and set your life compass on the path you choose.

As you prepare, we recommend the first step be based around building your team of professionals. The team you need depends on the amount and complexity of assets you expect to receive. With multiple options, it is important to know where you fit. If assets are in excess of $1 billion, you will likely need your own Family Office. However, if assets are not as complex and range between $100 million to $1 billion, we have found a multi-family office, shared with a business partner, or extended family members to be appropriate. This higher level of service generally makes sense for those who require a team dedicated to their specific strategy full-time.

At Buttonwood we have built our Family CFO practice for those in the millions rather than billions. As the CEO of your family, our services allow you to both enjoy your wealth and remain engaged, while our Family CFO Team proactively develops and implements your strategy.

Whether working with a single, multi-family office or Family CFO, one of the most important aspects of any relationship is to make sure those engaged place your best interest over theirs. “Are they a fiduciary?” A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.

Additionally, as CEO of your family, it is critical to find a Team with the right focus to work with you and your family. Do you prefer a national firm with offices you can visit across the country? Or is a smaller team that knows you and your multigenerational family a better fit?  With the significant decisions and implications that come with wealth and liquidity events, you will need the right people in your court.

While the financial implications cannot be ignored, the emotional aspect of money should also be addressed with the same level of care. Especially in the time of an inheritance, you have likely lost someone close to you and need to grieve. This may be a good opportunity to also include a therapist or grief counselor on your Team to talk in depth about the feelings surrounding your new wealth.

When a material change takes place, we recommend taking the time to stop and think about what is important to you. Before you and your Team can truly implement, everyone needs direction. We recommend starting with a list of ideals and/or passions – when you wake up in the morning, what is it you are excited to do each day? When your time on Earth ends, what do you want to be known for? We have found these to be deep and personal questions, but once defined they provide you and your Team a blueprint to anchor your financial life.

With your Team in place and direction defined, it’s time to put your strategy to work. Your team should be proactively sharing pros and cons of material decisions, next steps and updates. Specifically, your Team will likely be coordinating increased liability coverage, estate plan revisions, investment strategies designed to protect and grow assets, multi-year, and likely multi-generational tax strategies, income cash flows and if desired, charitable giving strategies. At this stage, your initial strategy should be under way and your Team should be making minor adjustments as implementation progresses.

As your financial strategy becomes more routine over the first couple of years, ongoing management is never done. Together you will have spent many hours with your Team to build and implement a solid foundation. The focus now turns to monitoring and adjusting strategy to adapt to our ever-changing world. Your Team should be proactively engaged and opportunistically looking for opportunities and threats: Tax and estate law will change with political parties in office, economic cycles will come and go, and investment assets need to adjust. Ongoing meetings with your Team should be taking place to keep you in the know.

Sudden wealth can be an exciting time but can also be emotional and overwhelming. Buttonwood exists to mitigate the stress and complexity of wealth. If you anticipate a large inheritance, a business or stock sale, an ESOP distribution or even a Mega Millions lottery win, our Team has the experience to provide direction toward a comfortable financial future. Schedule time with our Family CFO Team to share your situation and learn more about what we do.

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