Building Generational Wealth - What Is It & How to Get Started?
by Christopher Levarek
“Destiny is not a Matter of Chance, it is a Matter of Choice.”
- William Jennings Bryan
We all have that memory of a time when we saw a display of great wealth. Picture this. You are at a fancy restaurant for your anniversary with your significant other. Quite suddenly a brightly colored sportscar, a Ferrari, pulls into the valet and out hops a kid looking to be no more then 18 years old. He tosses the keys to the valet and strolls in the restaurant with confidence. You turn to your significant other as you both nod in agreement saying something like “Lucky kid. Family must be wealthy…”
Or maybe YOUR daughter comes home from college one day and tells you how her classmate is “soooo lucky”, and that she is a “trust fund baby”, and her college tuition is all paid by some trust account in the family. You sympathize with your kid and nod in agreement, “Lucky Kid. Family must be wealthy…”
Now, have you ever wondered how those “wealthy families” got wealthy? Or how they stayed wealthy? Note, I’m not talking about the flash in a pan, made some great invention accounting for less than 1% of true wealthy people. I’m talking about the Trumps, the Rothschilds, the Rockefellers, the Waltons, the Mars, the Dorrance family, the Koch family, etc. The wealth I’m talking about is called generational wealth and it persists through multiple generations.
Each of these family’s at some point started something that continued on through time, long past the death of the person who started it. Today, I want to talk about how you too can focus on building generational wealth, if desired, and some strategies to get started. Regardless if you come from poor parents, have debt or were dealt a bad hand starting out; it is entirely in your power to change the future outcome or reality for your family & future generations. Let’s jump in!
What is Generational Wealth?
Generational wealth is simply wealth that persists from one generation to the next. Other similar descriptions of this process include legacy wealth or family wealth creation. Building generational wealth, means creating wealth through assets that will finance or fund future family generations for years to come.
How do you go about Building Generational Wealth?
When we talk about generational wealth, it is creating something that persists or compounds through time. Here are some methods for building generational wealth for your family.
Invest Into Real Estate
Obviously we would put this at the top. Real estate is the number one most common asset in wealthy families today and with good reason. Almost all wealthy individuals/families have and hold some form of real estate due to the benefits of annual cashflows being paid by tenants and steadily appreciating properties.
These assets allow for someone else, a renter/tenant, to pay down your mortgage/debt and even help you save on taxes through credits and paper losses on the property. Real estate is, by far, the best investment for long term wealth creation due to the amount of compounding returns and tax benefits associated with this asset class.
Open a Retirement Savings Plan
Whether you choose to contribute to a 401k, IRA or Roth IRA, a savings plan is a great way to start building wealth for the future. Investing in a program for future use and possibly achieving tax benefits on the present can definitely increase the odds of passing on wealth to your family.
These funds are invested into the stock market and typically are low risk, set it and forget it plans. The funds will slowly accumulate and be available when needed at a future date. This will help your family to maintain and build financial wealth long after you are gone.
Invest in your Children
Consider putting savings aside in a 529 plan, another investment account used for college tuition which also benefits from tax savings like a 401k. Student debt is a major factor in the lives of our children and placing money aside in a tax savings plan for college tuition can be a great way to accelerate your child’s success. Alternatively you can invest into a piece of real estate property that will be paid off on your child’s 18 birthday OR start a life insurance policy for your child in a similar manner(more to come on this).
Besides just putting money aside for college, investing in all forms of education for your children is a great way to ensure your legacy or wealth continues. Financial education and wealth creation should be taught and emphasized to ensure wealth is maintained. They are your greatest investment as they will carry the torch for the family into the future.
Start a Family Business
In many of those wealthy families listed at the start of the article, a family business was started. The Walton’s of course started Walmart, Koch’s started an oil refinery business, and well the Trumps wealth began with a real estate development company. Regardless of which industry chosen, a family business can grow into something that sets up future generations for years.
Being able to hand over the family business to your children and truly leave something with your name or brand is of course the so called “American Dream”. It may have it’s challenges but there is a reason it is so commonly taken up and that is due to the long term success implications and desire for fulfillment or achievement in life.
Even if the your later generations do not want to “join the family business”, you can always sell the business and fund more passive investments which would help continue legacy wealth creation.
Life Insurance
You are your greatest asset. Understand that, if you leave this life too early, you might not have accumulated all you desired or set your family up for all it could be. This would be a very poor method to build legacy wealth if unprotected. If you invest into yourself by protecting yourself through life insurance, you are ensuring you around to continue to execute your dream and build wealth for your family. This is protecting your greatest asset, you.
In addition to the death benefit of life insurance, policies in Whole Life Insurance can be used to accumulate funds and finance purchases in the future for a family, business or even investing. Rather than borrow from a bank, a person with a well-funded whole life insurance policy simply borrows from themselves. This is called the “Infinite Banking Concept”, read our article on the subject here.
Many families employing this strategy even open up whole life insurance policies for their children when they are young, so that at 18 years old, these policies are already well funded for use with college tuition, a new business idea or any venture.
Protect your Wealth & Pass it On
Ensure that you protect all the wealth you want to pass on to future generations. This is where you make your child, pardon the term, a “trust fund baby”, as referenced in the story at the start. How do you protect your wealth?
Speak with an Attorney - Create a Plan
Pay for a consultation call with an attorney and discuss all your assets you want to protect to pass onto your children. The attorney will create a entity such as a trust or estate plan that will encompass all these assets and then name a beneficiary as well as the set trust structure or even management of the estate.
Trusts can even have varying board members that approve decisions or a custodial manager who has your best interests at heart. Perhaps, you only want your children to receive the benefits of the trust at 18 or even 21 thus further setting them up for success versus failure by providing funds too early in their life. Much can be established in the estate plan and dictated to your wishes to best continue on your legacy.
Consider creating a will in addition if it is not already created to go with the estate plan. Remember, you spent all the time building this wealth and don’t want to see it go into probate or be argued over in court. Protect your interests from ugly disputes and ensure it’s an easy process for your family at what will be an already sensitive time.
In Final
Building generational wealth has to start in some generation, why not yours? It truly is as easy as making it a purpose or goal in your life. Rather than focusing on simply creating wealth for you and your hobbies, imagine building a legacy that protects your children and your children’s children? What would that look like?
Not only is this entirely possible, many others have done this and many will do it for years to come. I invite you to be one of them and pick just one of the above to start today. Wishing you much success on your wealth creation journey.