Nearest and dearest

The Ritcey Report

May 11, 2017

This is part three of a four-part blog about the, sometimes devastating, consequences of overnight wealth.

According to the National Endowment for Financial Education, 70% of people who come into sudden money are broke within a few years.

In this, the third of my blogs about The impact of sudden wealth, I want to focus on the consequences your new financial status can have on those nearest and dearest to you (family and friends) and how you can manage their expectations without giving offence.

First, the negative news

Let’s get the negative news out of the way first. The effect of sudden wealth on most relationships is, almost always, bad.

Eileen Gallo, a psychotherapist in Los Angeles and a columnist for the Journal of Financial Planning, spent two years studying people who had hit the jackpot through initial public offerings of stock, lotteries or unexpected inheritances.

She found that nearly all said the effect had been negative. She concluded that many family members feel envy or an astonishing sense of entitlement about a relative’s new wealth, expecting handouts or permanent financial support.

Sudden wealth syndrome

Another expert on the subject, Dr. Stephen Goldbart, who invented the phrase sudden wealth syndrome, used the following example.

He recalled a couple in their early 40’s who experienced sudden wealth after exercising stock options in the mid-1990s.

They offered to pay for the cost of a private high school for their favorite niece so that she could get a better education than the one offered by her neighborhood’s so-so public school.

The girl’s mother reacted angrily, accusing the couple of undermining her relationship with her own daughter.

A checklist of steps

  1. Decide who you want to help among your family and friends. Make a list.
  2. Consider carefully how much money you can afford to distribute and to whom.
  3. Do not disclose the total amount you have been fortunate enough to come into, simply the amount available to share.
  4. Consult your wealth advisor about the tax implications of what you’re planning to do before you do it.
  5. Make sure that the gift you’re planning to distribute has no strings attached.
  6. Above all, be transparent and decisive.
  7. Tell all the beneficiaries that you love them.
  8. Issue the cheques and leave town for a month.

Good luck!

Dave Ritcey, The Ritcey Team, Scotia Wealth Management