Like a will, it’s wise to make one of these long before you actually need it.
Call it a lottery plan. More likely, it’s an inheritance, business sale, or lawsuit victory plan.
I know people who have been in all three of these situations. It is more likely than you think.
The First Rule: Shut Up
The first rule of suddenly-rich club: you do not talk about suddenly-rich club.
This will be impossible. In fact, you shouldn’t manage it alone. You need a team—but not friends or family.
There’s a reason celebrities hang with other celebrities: others are always trying to get something from them. Those who are equally rich and famous don’t need anything.
If you have friends who aren’t just rich, but are actively bad at managing money, they need to not know you’re wealthy if you have any hope of remaining friends with them.
The Second Rule: Find your Team
Even if you trust their character, they may not be mentally equipped to share that massive of a burden, and it’s not fair to make them.
Hire a professional who can handle it. AKA first thing: get a lawyer, followed by a CPA.
The lawyer is so you can set up your funds within a trust. You want rules around its use, even if it’s only you using the funds.
Both should not be first-timers. They need to be comfortable dealing with large amounts of cash, tax optimizations, and generational amounts of wealth. In fact, They should be bored from it.
DO NOT HIRE AN INVESTMENT MANAGER. Everyone and their grandma is an investment manager. They’re almost always mid, or worse, useless.
They will waste your money. You are better off putting your money into boring stuff (like index funds) while you learn about how to invest it yourself.
In fact, you must learn how to invest it yourself, or you’ll be one of history’s many, many, many people who got rich and lost it quickly because other people diluted it away.
If you do get an investment advisor, make sure they are working on a flat-fee basis, not taking a percentage of assets.
The good ones don’t advertise. They come recommended by other rich people.
The Third Rule: Choose your Allocations
Decide now how much you want to donate, how much will go to specific friends or family (in a trust, never as outright cash).
You can also be creative with this. For example, I won’t give friends or relatives cash unless it’s for genuine medical need, education expenses (and I know it won’t be wasted, AKA the student isn’t a bum), and maybe a small, pre-determined dispensation as a gift per year. If I do give, it will be payment to the institutions themselves, not cash to the individuals to then pay for those things.
Legally, as of 2022, you can give up to $16,000 in cash to any person per year tax-free. Any more than that can incur taxes.
Maybe a trust is a clever way to give more without dealing with taxes. Your team can answer that, not me.
For more details, and horror stories of people who got rich and foolishly let everyone else know about it, read more on Reddit.
