You won the lottery.
You landed a major inheritance.
Or, more likely, you signed a lease with an oil or gas drilling company allowing access to your land, rendering you an instant millionaire.
Photo provided by Rust and Moore
“Sudden Wealth... It Happens” authors David Rust and Shane Moore present this helpful “wealth wheel” diagram in their book. It represents 14 primary disciplines that together make up a comprehensive wealth management process.
Thanks to the shale industry, the local area is booming like never before. People are excited. Landowners in Belmont, Jefferson, Monroe and Harrison counties are signing leases with oil and gas companies for thousands of dollars an acre. People with 40 or 50 acres of land are making several hundred thousand dollars. Landowners leasing a few hundred acres of land are now millionaires - and if predictions are correct about the abundance of resources in these areas once drilling starts, these numbers are just a drop in the bucket compared to the money that's yet to come in. Once production begins on some of the large lease holdings, the area may even see a few billionaires.
Many people dream of one day receiving a big windfall of money. They fantasize about paying off debt, buying new homes and cars and travelling the world. This dream is becoming reality for many, and until now, not many know what it feels like to get this kind of money. How will it affect your family? Your relationships? Your community?
According to David Rust and Shane Moore, authors of "Sudden Wealth... It Happens," the overall arching emotion in every case of sudden wealth is fear. The responsibility of managing this much money terrifies people, as they fear they will make the wrong decisions - or they won't make any decisions at all.
Polly Loy, Extension Educator - Family and Consumer Sciences for the OSU Extension in Belmont County, began conducting her own research on finding resources for those faced with sudden wealth. "There's not a lot of research out there," Loy explained. "But if you look at human behavior, and you do research and write down what people do in given circumstances, we can usually predict behavior. Human beings are way more similar than they are different, and they tend to do the same sort of things in the same circumstances, with a little variation."
In addition, she warns that any statistical research found online should be taken with a grain of salt. Loy came across stats about people's reaction to getting lottery money, but when she followed through on the source of the information, she found it was a research study put out by a company that provides lottery paraphernalia to states. "The information sounded positive, but when you look at who is producing the information, then you wonder how reliable it is."
So what should you do first?
"People usually start prioritizing on their own," Rust said during a telephone interview. Any type of thought process - other than buying - is a step in the right direction. But sometimes these thoughts can be very overwhelming. In fact, Rust and Moore strongly encourage addressing the emotional burden of coming into a large sum of money with a counselor or therapist.
Loy agrees. "There's all kinds of emotions that come up, like the guilt of having money when other people don't, the stress of the way people react to you now that you have money," she explained. Having access to a counselor would help a sudden wealth recipient work through those worries with an unbiased third party. Even spending time and just sharing the information with a counselor can provide a calming, peaceful effect.
An important topic on its own, Rust and Moore are releasing a second book, "Sudden Wealth... Blessing or Burden" in a few weeks. The book was co-authored with two family therapists who help address some of the emotional hurdles those with sudden wealth can face.
Obviously, though, the major undertaking by suddenly wealthy people involves financial planning. It's OK to have some ideas about what you'd like to do, but someone must help you bring these ideas to fruition. "Ideas are good," Moore said, "But you have to have a plan, and a plan has to be drawn up by someone who has experience in sudden wealth cases."
Fears of where to turn are compounded by the fact that the financial industry contains many different players with different agendas. These competing agendas, according to Rust and Moore, confuse people by blurring the lines between services offered by investment advisors and broker-dealers.
Rust and Moore present a very helpful "wealth wheel" on page 119 of their book that represents 14 primary disciplines that together make up a comprehensive wealth management process. These areas include taxes and accounting, banking, financial planning, investment management, life insurance, estate and family law, business law, property and casualty insurance, psychology, real estate, philanthropy, personal security, personal representation and personal trust. Of course everyone's financial situation is unique, so not all will need an advisor in each discipline.
For example, most people probably don't have to worry about hiring a body guard, but maybe you want to install an alarm system, or put a lock on your gate. Or in the past, you've not had to consider liability insurance, but if someone gets hurt on your property, you could be sued for a lot more money than you would have before. Maybe you're planning to buy more things or a new home, so you'd want to consider an estate attorney to figure out how it's all going to be divided.
These are just a few things to consider, so Rust and Moore, as well as Loy, suggest finding a financial planner, or what Rust and Moore call a "sudden wealth strategist," to guide you through the process. Rust and Moore compare the role of the strategist to an orchestra conductor: "He or she maintains the beat of the music, makes interpretive decisions such as the speed and intensity of passages, and communicates these decisions in rehearsal and performance. Similarly, the sudden wealth strategist prepares the financial team to develop a coordinated plan, directs the pace of implementation, and encourages effective communication between the specialists. Just as a well-conducted orchestra creates beautiful music, a well-directed financial team can compose a wonderfully orchestrated wealth plan."
And just how do you find an appropriate financial planner? The list of questions to ask is vast and among them include asking about the firm and its organization, similar clients, licenses and credentials, financial planning philosophy and cost of services. The list at the end of this article provides links to educational resources, including information about what questions to ask those you're considering to manage your wealth.
Loy issues a word of caution, however. "We've had people coming in and calling from big companies in big cities wanting to be financial advisors to people in the area." She feels that some of these advisors may try to take advantage of those who come into sudden wealth and don't have much experience in financial investing and planning. However, Loy points out that anyone who owns a couple hundred acres of land certainly had plenty of wherewithal to manage it, especially paying taxes and making financial sacrifices.
In addition, many of the people who own hundreds of acres and now find themselves with sudden wealth have always had a "do-it-myself" mentality that could get them into trouble now. For instance, someone could say, "I've been doing my taxes all these years, and I can still do it." Loy said this type of thinking could put this person at a disadvantage because there are new tax laws that didn't apply to them before. "It's good to be knowledgeable," she added, noting that the do-it-myself idea can be very helpful. "But you also might need people." Few people possess the skills necessary to manage the amount of money they're getting.
In an effort to provide as many resources as possible to the suddenly wealthy, the OSU Extension in Belmont County will present an oil and gas financial workshop "Shale and You: A Financial Management Workshop - Taxation and Sudden Wealth" from 7-9 p.m. on Tuesday, March 5, at the Union Local Middle School Auditorium, 66859 Belmont-Morrristown Road, Belmont. The presentation will feature OSU Extension tax expert Dave Marrison discussing taxes and "Sudden Wealth... It Happens" authors David Rust and Shane Moore giving a presentation. To reserve a seat at this free workshop or for more information, contact Polly Loy at the OSU Extension, 740-695-1455.
Several resources are also available online to help educate and guide anyone with new wealth. These resources include:
The upcoming "Tax and Investment" section in the Wednesday, Jan. 16 edition of The Times Leader will also provide more information and insight on the sudden wealth issue.