I recently read an article written by Thomas Junkin, David Cieslowski and Vincent Tonietto, all with Fiduciary Trust Canada and published in their Summer 2019 issue of Perspective. The topic was entitled “Stickhandling Sudden Wealth”. In it, the authors discuss the unique investment and estate planning challenges facing younger clients who are suddenly wealthy. While the context of their discussion is professional hockey players, their messages resonate equally with other young and suddenly wealthy individuals. I thought I would use this blog to set out some of those messages, with attribution to the folks at Fiduciary Trust Canada.
- Sudden wealth can be overwhelming for anyone. It is particularly overwhelming for a young person who may not yet have had exposure to managing significant funds, both from an investment and consumption perspective. As if this were not overwhelming enough, the fact that they may not have had the need to engage with professional advisors in any meaningful way will undoubtedly compound matters for them. They now must understand the range of professional services they may need to engage and then work to find appropriate individuals to fill those roles.
- Working with an individual whom the young person trusts to navigate the complex world of financial planning and investment management is critical.
- In addition to the new found financial and investment management issues the young person needs to address, come also the estate, will and tax planning issues that need to be considered. Not surprisingly, the attitude of these newly wealthy people often is that matters related to estate and will planning are not ‘top of mind’; they are “too young to have to worry about incapacity or death”. Unfortunately, life events often transpire in unforeseen ways, which in the context of wealth can have unintended, inappropriate and costly outcomes. It is just as important for a young person with wealth, as it is for an older person, to have a valid will and power of attorney for property. Working with a trusted individual to establish a team of advisors to address these various matters for the young person is imperative.
- Sudden wealth can bring out the ‘friends and family’ with whom the young person has had little or no connection until their financial status changed. Responding to the inevitable requests for “just a little help”, or “I’ve got this great investment opportunity” or “my favourite charity needs some funding”, requires some finesse. A trusted advisor who can act as a ‘gatekeeper’ for these requests will be invaluable to the young person by protecting their wealth and social circle from those who are engaged with them for financial, as opposed to personal, reasons.
- Coming in to sudden wealth has the potential to allow a young person to re-evaluate their life in order to answer the question “What do I want to do when I grow up?” Depending on the extent of the wealth, it may even go so far as to allow the young person to engage in less financially lucrative income earning pursuits knowing they have the financial resources to support themselves. With this, however, also comes the need to appreciate the old adage our parents told us that “money does not grow on trees”. Rather, absent some thoughtful financial planning, money can (and unfortunately, based on client experience, often does) run out. In the event a young person wants to engage in their dream pursuits, it will be critical for them to work with a financial planner to ensure they understand the parameters of spending they can engage in, while also ensuring they will have the means to financially support themselves (and any future family) for the rest of their lives in the lifestyle they can afford.
All in all, while sudden wealth can be a liberating event, it also brings with it complexities, often referred to as the “weight of wealth”, that should be addressed.