Building Generational Wealth: A Blueprint for Legacy

Ever wonder how you will pass on your wealth to future generations?

If you are the first person in your family to pass on generational wealth or are next in line to inherit it, your next steps will allow your family to build on your legacy after you’re gone.

Our first step is learning about generational wealth, its importance, and how it can be developed.

What Is Generational Wealth?

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Generational wealth refers to assets such as cash, investments, and real estate inherited by the next generation of a family. Let’s be clear: generational wealth isn’t just about physical possessions. It also includes intangible assets such as values, habits, and wisdom. Additionally, your character is priceless. It helps manage generational wealth responsibly.   

Generational Wealth: Why Is It Important?

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It is essential to build generational wealth because it can provide opportunities and financial security for your children and grandchildren. Remember, your wealth won’t be the only thing passed down after you pass away. With proper guidance and education, the younger generation can learn to navigate the complexities of finance and ensure the continued growth of their family’s wealth.  

Money, Relationships, and Decision-Making in Wealthy Families

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Discussing wealth management within families can be uncomfortable and challenging. Families and relationships can become tense when talking about the intricacies of wealth. However, it is crucial for families to face these challenges and have open discussions. By navigating wealth together, family members can grow and thrive as they share a common purpose. 

A “Shirtsleeves to Shirtsleeves” Phenomenon

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According to a survey of ultra-high-net-worth clients conducted by The Merrill Center for Family Wealth, 70% of family wealth is lost by the end of the second generation, and 90% is gone by the end of the third generation. It has also established that “Most of the dissipation of wealth isn’t due to the economy or markets but to factors within the family, such as limited communication and heirs who lack the necessary skill sets to manage wealth.

Families With Assets Over $50 Million Surveyed

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This survey included 270 individuals from families with assets of $50 million or more. Participants were attendees at Merrill client educational programs. They say: “The pandemic fueled more family conversations about wealth. 

“While most family members had positive experiences, more than one in four said they regretted having the conversation.” One in three respondents (33%) experienced increased conversations about family wealth during the pandemic, and 78% said they had spontaneous conversations about wealth. At the same time, 26% regretted having the conversation altogether. 

Taking a Progressive Approach to Disclosure

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One of the reasons for discomfort over these conversations is the fear that your children or grandchildren will lose motivation to build their futures. It can be uncomfortable for someone who has created wealth to reveal all the details, such as the exact amount of money involved. 

As revealed by advisors, what’s best in these cases is that all-at-once disclosure can overwhelm the rising generation. Rather than taking out your balance sheet and starting point-by-point, professionals suggest going gradually and holding a series of conversations over time. First, prioritize purpose and principles, then discuss structure. After that, you can provide information on amounts.

Defining Values of Wealth

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To have a productive discussion about wealth, it is crucial first to understand its value. This can be achieved by asking yourself questions such as, “What is the purpose of this money?” and “What does it mean for my family?” After defining your intentions, include the younger generation in a collaborative conversation that determines the family’s shared values.

Decision-Making Can Be a Collaborative Process

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Did you know that decision-making can be a collaborative process? It’s true! We can develop better ideas and solutions that benefit everyone involved by working together. 

According to the survey mentioned above, 54% of the respondents identified the problem of limited governance as a significant challenge. Most families share decisions across generations but need more skills to do so. Talking about generational wealth can benefit families by motivating them to work towards a common goal. So, how can we build wealth? 

How to Build Generational Wealth

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To achieve positive outcomes in life, we need to work, make an effort, or have faith. Building wealth is done gradually and is a process that requires time, deliberate actions, and consistency. 

There are no shortcuts to creating wealth that lasts for generations. If you’re ready to start building generational wealth, here’s how in 3 easy steps:

Build a Strong Financial Foundation

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To start building wealth, you need a solid foundation to build upon. Eliminating debts, excluding mortgage, can help you start a safe emergency fund to cover your expenses for 3 to 6 months.

Invest 15% of Your Income for Retirement

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To build wealth, it is essential to plan for your retirement so that you can relax without worrying about medical expenses. You can start your retirement savings gradually, for example, by putting aside 5% of your income in the first few months and increasing it to 10% and eventually to 15% to cover your retirement expenses. This way, you can be assured of having enough savings for your post-retirement life.

Teach Your Kids About Money

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As parents, it is vital to make talking about money and the significance of saving with your children a top priority. This is because the economic landscape around the world is constantly changing, and future generations will face different financial challenges. By discussing these topics, you can teach them to invest correctly, how to save, encourage healthy spending habits, and include yourselves as role models for your children.

How to Pass On Generational Wealth

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Part of generational wealth is learning how to pass it on, but making it as smooth as possible is important. The last thing we want is the upbringing of confusion, discussions, or any situation that can disrupt the strong relationship built in the family. 

Here’s how to smoothly pass on generational wealth in 4 crucial steps: 

Be Sure to Write a Will

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It is a common misconception that writing wills are only necessary for older individuals. However, this is not true. Anyone over 18 should have a will, regardless of their marital or parental status. 

A will is essential for everyone, whether you are single or married, have children or pets, or are childless. So don’t wait until you’re older; start planning for your future now by creating a will, a legal document that states how your assets (like your house, investments, retirement accounts, and other things you own) will be handled after your death. 

Creating an Estate Plan Is Essential

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Estate planning will help determine what happens to your assets after you pass away. If you know how to create your estate plan, that’s awesome! If you have yet to learn, an estate planner can help you by answering your questions and supporting you with any difficulty while planning what you desire. Also, they can show you how to minimize your federal estate tax.

Organize Your Legacy Drawer

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A Legacy Drawer is a name for a special place where you can keep all your important documents that your family might need in case of any emergency or unforeseen circumstances. It is vital to keep it organized and updated. 

Here are a few things that you should include: your will and estate plans, any financial account information, funeral instructions, as well as your insurance policies, tax returns, and account passwords. You should also keep a copy of your monthly budget and personal letters addressed to your loved ones. This will ensure that your family has everything they need to manage your affairs in the event of your absence.

How Is Generational Wealth Transferred After Death?

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Most generational wealth is passed down through inheritance from one generation to the next. Estates that are worth more than $12.06 million will be subject to the federal estate tax. Taxes on the transfer of a person’s property after death are called estate taxes. Inheritance taxes are imposed on the possessions that your loved ones inherit after your demise. Although no federal inheritance tax exists, six states currently have one. 

However, the good news is that many beneficiaries, such as spouses, children, and grandchildren, are usually exempt from paying any inheritance taxes. It’s important to seek advice from a trusted tax professional or advisor when dealing with generational wealth and taxes.

Transferring Generational Wealth During Life

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Many believe you can only transfer generational wealth once the previous generation dies. However, passing on wealth while you are still alive is possible. 

Here are a few ways you can change your family’s financial future:

Save for Kids’ Education

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Paying for your children’s education can set them up for success. Consider saving for their future educational expenses by contributing to an Educational Savings Account (ESA) or a 529 plan.

Giving Financial Gifts Is a Good Idea

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You can also give financial gifts to your family members, such as your children or grandchildren. Good news! You can gift up to $17,000 in 2023 and $18,000 in 2024 to any number of people without facing any gift taxes or the recipient having to pay any income tax on the gifts.

Share Your Knowledge With Others

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Generational wealth is not just about money. It also involves sharing your knowledge and wisdom with your family members to help them manage their wealth well and pass it on to future generations.

Start Building Wealth Instead of Dreaming About It!

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You can change your family tree forever. You now have the tools to push over the fences and achieve the dream of wealth! We all need help with investments, retirement plans, debt-free planning, and more. Financial advisors can help you with many questions and give you some terrific tips to reach your financial goals, and dream amount of wealth, and maybe even help you to retire early. Wishing you luck! 

This article was originally produced and syndicated by Financially Well Off.

Author: Luana Cantuarias

Title: Contributing Writer

Expertise: Blockchain, B2B, and SaaS

Bio:

Luana Cantuarias is a seasoned finance writer with over a decade of experience in the realms of Blockchain, B2B, and SaaS.