Stealth Wealth: What Should You Do If You Come Into Life-Changing Money Overnight?

While the idea of becoming wealthy overnight seems far-fetched, the reality is that it happens more often than you might think. According to the UK’s National Lottery, an average of 7 people in the United Kingdom become millionaires each week - more than 7,000 since 1994. Indeed, there is now a name for the psychological effect of being overwhelmed with a sudden influx of money called Sudden Wealth Syndrome. Platforms like Omaze are also taking off providing even more attitudes to access unexpected wealth, seeing winners pocket significant assets rather than cash. Current Omaze prizes include a £3 million home in Somerset and a £3 million villa in Mallorca (with an accompanying cash prize of £250,000). Winners can use the asset as they see fit, selling, renting or living in the property. 

So, if you come into significant wealth through a cash windfall, winning the lottery, or winning a high-value asset in a raffle-style draw, what should you do first - and, more importantly, why? 

Seek Advice then Take Action

In some cases, sudden wealth can be - literally - an overnight windfall (cash lottery prizes or winning assets in lottery-style games being the most common scenarios). In other cases, significant financial gains will be sudden but not wholly unexpected, for example, in the case of:

• A divorce settlement
• The sale of a business
• An inheritance 
• A liquidity event triggered by an unexpected opportunity or a career win 

Whatever the source of the funds, when the capital hits your bank account, it can be tempting to jump right in and take action, deploying funds in various ways. You might want to pay off debt or a mortgage, quit your job, take a luxury holiday or give cash to family and friends. However, the consequences of coming into a significant amount of money - although not necessarily negative - can be both psychologically and practically far-reaching. Ideally, therefore (especially in the case of a very unexpected windfall), it can be prudent to not do anything impetuous in the first instance. Ideally, you'd put a plan in place for your money after seeking expert advice and then deploy funds. 

This is because the often-overlooked reality is that anyone who suddenly becomes wealthy has a lot to organise, especially when you first come into your money. The most important aspect is often tax: depending on what the windfall is and how it's dispersed, usually, relatively significant taxes will need to be paid, or you'll need to set aside funds to pay fiscal liabilities triggered by the liquidity event. 

It's also worth looking at if there's any leeway on how to receive the cash, prize or assets. Sometimes, you'll have a relatively long window of time to make a claim: in the case of a lottery win, you might have up to 180 days to make a claim. It can be worth working with advisers to put plans in place in a more organised way than simply drawing down winnings into your bank account and transferring funds. The same will go for deploying a windfall triggered due to a divorce or sale of a business: get advice on how to draw down the funds ahead of time and what to do with the cash when you come into it.  

'Thinking ahead and putting a plan in place usually really pays off in terms of reducing admin in the long run,' says Toby Joncox, Group MD. 'It's also helpful for making sure your liabilities are covered upfront so you know how much cash you've got left after that balance - usually tax - is paid off. This is especially important in the case of a lottery win. Although in the UK, unlike the US for example, you don’t have to pay taxes on your lottery winnings. Although when those funds are sitting in your bank account earning interest, the accruing interest will potentially attract income tax. You'll also want to think ahead and ensure you're comfortable financially well into the future,' says Toby.

Go Long

Becoming wealthy overnight isn't (unfortunately!) the end of budgeting, needing to be financially prudent or keeping on top of spending - anyone spending more than they're making can eventually end up having financial difficulties. Therefore, when it comes to 'what's next' after becoming wealthy, the future needs to be planned for with care: millionaires aren't immune to losing all their money, and it's thought that anywhere between a third and 70% of lottery winners go bankrupt. 

'It's completely logical to look at a solid six or seven-figure bank account and take your foot off the pedal when it comes to planning for the future. But the reality is that wealth comes with strings attached, whether you come into it suddenly or not. If you don't move carefully, you can get tangled up in complex and unnecessary situations very quickly,' explains Toby. 

Anyone who has an unexpected windfall should speak with specialist advisers to understand what their liabilities are, how to make sure they meet both short and long-term fiscal obligations, possibilities to streamline their financial and fiscal position and what the options are for using the windfall to invest or generate income. This will usually require a holistic approach, from drawing up a monthly budget to retirement planning, estate and inheritance planning, debt consolidation (if necessary), and potentially diversifying assets to spread risk. 

'There's a huge opportunity when coming into unexpected capital to get that money working hard for you, and that's usually the secret to long-term financial success along with sensible financial planning. Getting advice so you can make informed decisions that help you meet your goals is imperative,' adds Toby.

Think Vehicles (Not Necessarily The Driving Kind)

Depending on how much capital you come into, structuring capital can assist you in managing and optimising wealth, transferring wealth to others in your lifetime or after you pass away, and holding investments or assets. 

Different corporate vehicles are used for different purposes, and each will usually be set up for a specific reason, including mitigating risk, facilitating capital flow or drawing an income, investing, and entities that will allow you to plan your estate. 

Usually, you will need advice on which structures to set up - tax advisors, accountants and lawyers are generally the go-to experts here. They will assess your situation and advise you on which structures to set up, ensuring you are meeting your legal and fiscal obligations. Sometimes (but not always), a third-party firm - usually a corporate services provider - may handle the day-to-day running of those structures. These players essentially do the 'housework' to ensure each entity is in good legal standing; statutory accounts are prepared, the vehicle is compliant with regulations and reporting requirements and so on.

How To Spend It

Once initial considerations are sorted, new-found wealth often delivers welcome buying power. However, people who suddenly come into large sums of money very quickly can adopt new attitudes towards spending, especially when buying significant assets like property or cars or making a business acquisition. 'These individuals can tend to lean more heavily on their new-found liquidity, and they use cash for big-ticket purchases like a new home,' says Toby. 

Sometimes, that will be the ideal course of action. However, the benefits of using cash rather than debt to buy assets are often very situation-dependent. In many cases, using finance to make that purchase can be beneficial because it will facilitate cash flow and long-term financial planning, and it can optimise your fiscal position and impact or facilitate things like inheritance or planning your estate. The bottom line? 'Getting advice on how to buy assets is important', adds Toby.

Anyone who's come into significant wealth very quickly will find that they have very different options than were available in the past, both in terms of what they can buy and their options for raising finance if they wish to do so. Therefore, getting the right advice on how to spend wealth - and getting that advice early - is critical when it comes to spending money: if you don't know your options, you can't benefit from advantages and be careful of pitfalls.