Should you hide your windfall gains? A Reddit user learns the hard way

“I recently ran into a large amount of money (7 figures) but I committed the grave mistake of sharing this information with other people,” the Reddit user wrote in a November 2023 post. “All of a sudden everyone wants me to invest in their startup.”

After landing a fortune, worth at least USD$1 million, the user has faced quite the predicament: “I want to be able to flaunt some of my wealth — upgrade to a sports car, buy a big house, etc. — but mitigate some of the social effects of this vis-à-vis my family.”

Turns out a windfall gain for any newly rich individual is a tough balancing act. To help, here are three for living a low-key rich life.

Put your windfall gain into a trust fund

Several commenters on the Reddit post suggested that the suddenly wealthy individual should stick their windfall gain inside a trust. Then, when people ask for a handout or come seeking financial favours, this new-found millionnaire can honestly say all the money is now tied up in a trust fund. Another option is to hand the bulk of this windfall gain to a financial advisor where the principal windfall sum can be used to grow the overall worth of the fortune.

By locking the gains into an investment strategy, the newly rich can achieve two goals: manage your money, safely, while sheltering your wealth from the open hands of those closest to you.

For example, you could set up a living trust — commonly referred to as an inter vivos trust — to help you split the windfall between you and your spouse. This option is best for anyone concerned about future taxation — where one spouse ends up in a much higher tax bracket than another. Using an inter vivos trust, a family can spread out the wealth and the taxable earnings, thereby reducing the overall tax paid on current and future earnings. Most living trusts are revocable, which means that the owner can make any changes to the trust during their lifetime — including dissolving the trust if they’ve decided on making a big life purchase or protecting their money in other ways.

One big benefit to putting your money in a trust is that it can help families avoid the costly probate process by better controlling how heirs receive assets. This could be one way to save face with your family if, like the original poster in the Reddit thread, you’re not too keen on spreading your wealth during your lifetime.

For more on using trusts, check out Jamie Golembeck's breakdown on how to use trusts to shelter estate wealth. As the Managing Director of Tax and Estate Planning at CIBC Private Wealth, Golembeck breaks down the primary benefits of using trusts to smooth out taxes owed and to redistribute wealth among family. For those just starting their wealth-building journey, another option is to tap into knowledge offered by CIBC's Investor's Edge. By opening a brokerage account, you can test out what you learn using a practice account. Right now, new clients get up to $100 in commission-free options until October 31, 2024 when they open a new account.

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Go low-key with a windfall by practising stealth wealth

Another way to live a low-key rich life is to practise stealth wealth. According to Experian, an American consumer credit reporting company, stealth wealth is “the practice of keeping your accumulated assets private.”

There are several ways to achieve stealth wealth:

• Avoid conversations with friends and family about income, assets or debt as this may reveal too much about your windfall gain
• Consider living below your means
• Avoid lifestyle creep — like suddenly upgrading your old Toyota Camry to a fully kitted-out Dodge Challenger — because, again, this is a dead giveaway that you may have access to a lot of cash

By practising stealth wealth, the newly found wealthy have an easier time of untangling their finances — including your income, net worth and assets — from their personal relationships. This makes it easier to dodge awkward situations, like friends and family hitting you up for a loan or “to invest in their startup.”

For those not-yet-wealthy, don't fret. Stealth wealth is not just for the rich. Anyone can choose to live below their means. Pump any spare money into investments, high-interest savings accounts and tax-advantaged savings accounts, such as RRSPs you can can quietly grow your wealth and set yourself up for a rich life and a carefree retirement.

If you're in the market for a good place to park some extra funds, consider a no-fee, high-interest earning savings account (HISAs). While guarenteed investment certificates (GICs) used to be the go-to investment option for those who wanted a safe place to park money, while still earning a bit of interest, HISAs are now a better option since they offer easy access, along with high interest rate earnings. For instance, online-only provider, EQ Bank, currently offers 4% on any savings deposits — and this digital bank consistently offers some of the highest high-interest savings account rates. Another good digital-only option is Koho's Easy account with a current savings rate of 5% on all deposits. Or check out the following, limited-time, offers:

• Open and earn 6.25% with Simplii Financial on all deposits for the first five months when you open a new high-interest savings account
• Open and earn 4% on sall savings accounts deposits with Neo Financial
• Open and earn 6% for the first three months Scotiabank's MomentumPLUS Savings Account *See Account Provider's website for complete account details, terms and current offers. Reasonable efforts are made to maintain accuracy of information.

Be frank — and ready to cut ties

While stealth wealth and tying your money up in trusts and investments are all good ways to keep money seekers at bay, it could be quite mentally draining to hide your good fortune from those closest to you.

Several Reddit users alluded to this when replying to the original post. One said it is “perfectly ok to say no” to people asking you for cash favours and that you shouldn’t have to live a lie in order to avoid awkward discussions about your windfall gain.

“People need to be ok with being genuine and honest to the people around them,” explained Reddit users. “By saying no because they want that money invested in other means provides a more accurate example of building and maintaining wealth to others than lying about it.”

Another person wrote: “I never understand this problem. What's the issue with saying no and cutting contact with those who don't take no for an answer and don't respect your boundaries? If having too much (or too little) money would ruin my relationship with someone, I'd consider that a bullet dodged, since they never cared about me in the first place.”

If you’re lucky enough to land a windfall gain and you’re not sure how to structure your finances, consider talking to a professional who can help you come up with a plan and a strategy for how to breach that topic with your friends and family.