Generational Wealth

Building Generational Wealth

Everyone has concerns about their children’s well being and if you find yourself worrying about your children, that is certainly not uncommon. Have you ever had thoughts of how your family will be provided for or taken care of if you are not there? Have you considered how your own parents provided for you? If so, then you have certainly thought about generational wealth.

What is Generational Wealth?

Generational wealth is an aspect of financial planning that is geared toward passing down stable, significant financial resources to future generations. Simply put, it means wealth for you, your children, your grandkids, their grandkids and so on all the way down the generations.

Generational Wealth has commonly been referred to as ‘Old Money’

Why do 70% of families lose their wealth in the 2nd generation?

Could it be because wealth is not something that someone can teach? If it were a matter of merely teaching one to become wealthy, then most businesspeople, financial planners, professors, and others would be very wealthy. Becoming wealthy requires a great deal more than knowledge alone. Many factors that attribute to wealth are hard to teach and not easily passed on.  Creating and maintaining wealth requires hard work, discipline, sacrifice, and many other traits that are not easily taught.  

Look at how wealth passes through generations.

1st Generation
  • The 1st Generation is the generation that earns the wealth and that worked and experienced hardships to make sure they achieved something better for themselves. They work hard and diligently save to achieve their goals. Their efforts pay off and by the time they are ready to retire and live comfortably, they have acquired assets to pass on.

2nd Generation
  • The 2nd generation, while growing up, sees their parent's struggles and have a good understanding of the value of sacrifice and hard work. While they may be more comfortable as adults, they can still remember the frugal aspects of their lives growing up. Since they are aware, they make better decisions surrounding education and financial choices enabling them to build on the foundation given to them by their parents.
3rd Generation
  • The third generation never realizes the struggles and sacrifices the previous generations endured. The only thing they know is a life of plenty and have a real lack of understanding of what is needed to create and maintain the lifestyle they have grown accustom to.

It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. There are a variety of reasons why this happens:
  • Generations are taught not to talk about money
  • The prior generations worry that the next generation will become lazy and entitled
  • Many have no clue about the value of money or how to handle it

Most parents find it difficult to discuss their wealth.  Most parents find it difficult to have conversations with their families about what happens when they are gone.  Leading to no open family communication about sustaining wealth and legacy building. The result can lead to issues like unnecessary taxes, costly estate fees, and possible family strife. It is important to clearly outline family intentions. Without transparency, you run the risk of eroding the value of your estate.

The families that do maintain their multi-generational wealth are able to do so by communicating with the next generations in a very straightforward manner. The rules they live by to do this are very simple but not always easy. These tips can be used to have a successful conversation about wealth with your children.

  1. Having Lines of Communication: Open communication builds the trust that is the basis for sustaining your family’s wealth. Preparing the next generation for what they can expect is critical and you should take advantage of any teachable moments. It is important for the next generation to participate in decisions that can affect the family’s wealth. It could also be a good idea to introduce a wealth expert/advisor to help facilitate a productive discussion. Sharing family legacy intentions, values and passions will more commonly result in family member working together to achieve shared goals and it will also be critical in helping them stay together during times of adversity.
  2. Share Decision Making: Commonly, beneficiaries of family wealth are unable to properly manage what they have inherited. Often this is the result of decisions made by the earlier generations regarding the members' involvement with decisions made managing the wealth. By keeping the next generation out of the decision-making process can lead to serious dysfunction and lead to a serious lack of understanding about how the wealth is managed. They will be lacking the skills needed to ensure they lead a happy and productive life. Without the necessary core values or understanding of their family’s goals, the ability to maintain and grow the wealth is lacking.
  3. Consider an Impartial Trustee: Even with open lines of communication there can still be some challenges that a family will not be able to handle on their own. Having an objective third-party point of view could be useful, freeing any discussions from emotions that family members may bring to the table. Having a Trustee can ensure that your wealth is properly managed and will be distributed properly. A trustee, as a neutral party, can protect the beneficiaries over a longer period of time. They can also mediate over emotional attachments that some family members may have over certain items, items that could eventually lead to litigation amongst the family.
  4. Make a Plan: Developing a clear plan that outlines the direction of the wealth, so it is sustained for future generations. Lacking a proper plan could result in the wealth being lost for future generations to taxes, poor investments, and unprepared recipients of the wealth. Your plan should clearly outline how the family’s wealth should be managed and invested for future generations. Having a Financial Planning Professional should be considered to ensure that there will be something there for future generations.

Along with investing wisely and developing a good estate plan, educating the next generations is a crucial element in making your wealth last.

Your hard work has Created Wealth, maintaining the values you believe in will help to sustain and Manage Your Wealth, and passing along your fortune to your family will be a part of Leaving Your Legacy!

Create Wealth ~ Manage Wealth ~ Leave Your Legacy
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