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Sudden Money

The phrase “Sudden Money” describes the circumstance when a person receives an unusually large amount of money all at once, often from an unexpected source. These days lottery winners might come to mind, as do a few lucky game show winners. People who inherit money or sell a business may also qualify. But no matter what the source, Sudden Money alters more than just a person’s bank account; typically it alters their very life.

Having to deal with too much money may sound like child’s play but it has humbled a staggering array of adults. At one time or other, surely everyone has daydreamed about what it would be like to suddenly acquire a boatload of cash. What have you imagined yourself doing with Sudden Money? Me, I dream of paying off all my debts, putting money away to cover all the kids‘ college educations, buying a larger house, maybe buying a second house just for good measure, buying a few really nice cars, and then living peacefully off the interest. Yes, that would be great - especially the peaceful part. So that's how the suddenly wealthy live their lives then, right?

Wrong, says Susan Bradley, author of the book Sudden Money: Managing a Windfall. Bradley found that people who come into new cash will either:

a) keep the money and lose family/friends,
b) lose the money and keep family/friends, or
c) lose both

According to Ms. Bradley, very few manage to keep both money and their family/friends.

Personally, I can understand the losing money part, but I wondered why so many also lose their family and friends. The people you say “no” to might be grumpy but surely the ones you help will appreciate you, right? Not so, according to Ms. Bradley. It turns out that even the family or friends you give money to find ways to resent you for it. If you loan them money to start a new business, when it fails (as most new small businesses do) the reason won’t be the proprietor’s lack of experience, but clearly your stinginess for not having loaned them enough money. If you loan them money no strings attached and they can’t pay you back, then you were stingy for not lending them more or selfish for expecting them to pay you back in the first place. Advantage breeds resentment.

Mr. Andrew Cicero of Muskego Wisconsin had a particularly rough go. On the day he learned he had won the lottery, this part-time Security Guard ordered up a limousine right from work and had himself driven home holding the winning $5.5 million lottery ticket in his hand. Not unreasonably, Andrew figured he had it made.

"I thought I was set for life," Cicero said. Under the state's rules at the time, the $5.5 million prize he won in 1995 was to be paid out as in 25 annual payments that would start at $98,000 and increase each year. It was already enough money for him to retire from the part-time job he had taken to make ends meet after 37 years as a machinist.

But within five years, he opted for a different approach: he thought he could “do better” than the guaranteed income stream he was receiving. He decided to sell his right to the future annual payments to a private firm in return for an immediate lump sum - in this case, about $2 million dollars. He gave this money to “financial advisers” to invest, planning on living off his sure higher earnings. Not surprisingly, things didn't work out as planned. Mr. Cicero disregarded the iron rule of investing: all else being equal, the pursuit of higher returns requires the assumption of greater risk. The year was 2000, a spectacularly bad time to be sinking one's entire fortune into tech stocks, but unfortunately… that is exactly what Cicero’s financial advisers had him do.

"It's one of the classic kinds of lottery loss stories," said Andrew Stoltmann, a Chicago attorney handling Cicero's legal battles over what remains of his squandered fortune. "This guy's a blue-collar factory worker. The only thing he did that you could even say is wrong is he trusted his financial advisers." In the end, Cicero lost most of his money in bad investments and he ended up paying $240,000 to the IRS in addition to his taxes for penalties and interest after he learned the hard way that a lump-sum lottery buyout doesn't count as capital-gains income. To top it all off, after blowing his fortune his marriage ended in divorce. "You want to talk about a sob story, he's it," Stoltmann said.

It’s hard not to feel sorry for this fellow; true financial security within his grasp yet Mr. Cicero could not help falling prey to the idea that he could “do better”. He cashed in a guaranteed stream of income for…for what? For the chance of earning even more money, and it wound up costing him everything. Imagine having won a guaranteed $ 5.5 million dollars only to end up broke, alone, and living on social security.

Those of us who work in claims resolution deal with our own particular type of sudden money recipients. Luckily, however, we get a chance to show our recipients a superior option: not only secure income for life, but non-taxable secure income for life. Our recipients are protected not only from the IRS, but also from the demands of family and friends and the lure of dubious investment schemes. By agreeing to an income stream instead of a single large lump sum, they honestly do not have large sums of cash sitting idly by. Their money is safely invested, working to secure their future, just as it was originally intended to do.

Want to protect one of your claimants from the hazards of Sudden Money? Show them how to be truly “set for life”. Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.