Generational Wealth

Generational Wealth includes all of the assets, money, resources, and knowledge, passed down from one generation to the next.

These can include stocks, real estate properties, bonds, businesses, valuables, and any other items or intangibles that have monetary value.

Generational Wealth is created and transferred to the next generation during life, directly as monetary gifts or indirectly through education and financial literacy, or after life by inheritance.

Generational Wealth

What is Generational Wealth?

Generational Wealth refers to resources, valuables, knowledge, and money that one generation transfers to the next.

Families often want to leave a legacy. To set up the next generation up for the future. Parents and grandparents often want to make sure their next of kin are taken care of financially.

Wealth can include many things.

It includes financial assets, like cash, crypto coins, investment funds, savings bonds, stocks, and retirement accounts.

It includes family-owned businesses that started by one generation, expanded by the next.

Generational wealth is about providing a safety net for your kids.

Wealth includes physical assets like properties, houses, real estate, and land. Other family valuables like jewelry and luxury goods are considered wealth.

It includes intangible assets, intellectual property. Examples include patents, trademarks, and copyrights.

Finally, wealth includes education, knowledge, and skills that you teach and pass on.

Ensuring children are educated and have developed skills to succeed in life increases their income potential, preparing them to build their own wealth.

Financial literacy is especially important for building generational wealth.

generational wealth: teach kids financial literacy

Building wealth and keeping wealth are two different skill sets. You have to teach your kids how to manage wealth, so they don't waste all your family's hard-earned wealth.

Taking care of the next generation financially allows kids to become the best version of themselves.

Kids that grow up with financial security have the freedom to pursue their passions without worries.

Three-fourths of the families in the wealthiest 1 percent own privately held businesses.

Generational wealth is about providing a safety net for your kids. Enough for them to be their best selves without worrying about basic life needs and cost of education.

Aim to have enough to set them up for a safe financial future, but not too much that they lose their drive.

Supporting kids financially can help them become homeowners, start new businesses, achieve success in their careers, and more.

It reduces their overall debt, increases chances of achieving a higher education, and increases their overall ability to build up their own net worth.

Make sure your wealth carries on beyond your life. 

How to Build Generational Wealth

Building generational wealth can start with you in your lifetime and continues after it when you pass on your legacy to future generations.

How to Create Generational Wealth in Your Lifetime

Creating family wealth starts with you, in your lifetime.

Start with small steps.

First, you need to have some wealth in order to pass down wealth.

Building your own net worth is a major step.

Start with small steps.

Make more than you spend

Get a steady source of income and pay yourself first. Build a budget and start setting money aside. Live within your means.

A high income is important, but keeping more of what you earn is what matters.

Invest in the stock market

When you have enough savings to cover touch spots like unemployment or health issues, start investing money.

Investing in the stock market is a common way to build wealth over decades. Compound interest works best when it goes on for decades and generations.

In fact, a big part of capital for the top-ten percent families comes from returns on investments in the stock market. On average, they have over ten times what families in lower income percentiles have.

Become a Homeowner

Plan your way to becoming a homeowner. Owning a home provides a strong financial return on average and is a key channel for building wealth.

Plan your way to becoming a homeowner.
generational wealth - down payment support

Go beyond being a homeowner and invest in real estate. Investing in real estate can provide steady cashflow for your own retirement and a great legacy to leave on.

Build a business

Finally, building a business to pass down is a proven method for building wealth. It also provides kids with opportunities to expand the family nest egg.

Three-fourths of the families in the wealthiest one percent own privately held businesses.

A family business provides jobs for future generations, cash flow, and has potential for more expansion.

How to Transfer Wealth to the Next Generation in Your Lifetime

You can start to transfer wealth to the next generation during your life.

Helping your next-gen in their life can help them when it matters most.

There are both direct and indirect ways to transfer wealth.

Direct ways to transfer wealth

Giving monetary gifts to kids, newlyweds, and family members is the simplest way to give wealth.

giving monetary gifts - transferring wealth

Monetary gifts can set up kids for financial independence, reduce their lifetime debt, and help them avoid monstrous banking fees.

Investing for kids can provide kids with their own investment starter fund, exposing them to the stock market and compound interest.

Buying kid-friendly stocks for your kids when they are young can inspire them to take an active interest in the stock market.

Providing family support can take many forms. You can help recent college graduates pay back student loans. You take your adult kids on vacation, or even help them pay their rent when they are just beginning life.

Opening a savings account for your kids when they are young can teach them to save early and often.

Families can support kids in purchasing a first home by giving money for a down payment or by providing a low / no interest loan.

Indirect ways to transfer wealth

Families can give indirect gifts that help kids build their own wealth.

They can invest in educational success by paying for college, private schools, and tutors. Better education leads to higher earning potentials.

The world of personal finance is ever changing and evolving.

Learning financial literacy from a young age can prepare kids to handle money and their personal finance.

Teach your kids through interactive experiences, like buying their first stock together, or opening a lemonade stand.

Learning about budgeting, investing, building an emergency fund, and more, can set them up for a successful financial future.

How to Transfer Wealth to the Next Generation After Your Lifetime

The process of planning how to pass on assets to your kids is often known as Estate Planning.

Inherited wealth can play a direct role in building wealth.

The average family can expect to receive some kind of inheritance, but most won’t see more than $100,000. However, the top 10% of wealthiest families can expect to receive more than four times that amount in inheritance.

There are financial products that make sure your hard-earned fortune stays in the family.

Wills dictate how assets should be distributed in the event that a person passes away. A will removes the need for courts to settle inheritances.

transfer generational wealth with a will

If you’re not sure your children can handle a lump sum inheritance, you can set up a trust fund. A trust provides greater control by specifying rules about how to spend the assets in it.

Getting life insurance can help protect your dependents from the most unfortunate event by paying out a large sum of money. Life insurance can help parents secure their children’s financial well-being.

Examples of Generational Wealth

There are many ways wealth can be transferred between generations, not just by inheritance.

Here are examples of ways wealth is passed down from one generation to the next.

  1. Gifting money to kids
  2. Helping a newly married couple pay for their wedding
  3. Providing money for a downpayment on a first home purchase
  4. Teaching financial literacy to children
  5. Parents that let college aged kids live with them and save money on rent
  6. Giving your grandchild a zero interest loan for a home purchase
  7. Setting up and investing in a UTMA account for minors
  8. Building a family business that can provide jobs and income
  9. Setting up a trust that pays out funds to future family generations
  10. Purchasing life insurance, guaranteeing financial stability for the family during unfortunate events
  11. Accruing family wealth, real estate, and assets
  12. Opening a successful lemonade stand with kids
  13. Financing the best available schools and education for children
  14. Setting up a custodial Roth IRA for kids
  15. Creating a baby fund registry for your baby shower

Generational Wealth FAQs

How Much is Generational Wealth?

Any asset or monetary amount that you can pass on to your descendants qualifies as generational wealth.

Typically, it is less about an amount of money, and more about assets that can generate income.

A good amount of wealth provides kids and grandkids with a safety net.

It creates financial stability and generates income to cover life’s basic needs, and a few wants too.

It helps the next generation become homeowners, guarantees steady supply of food and clothes, and some entertainment too.

Children who have a financial safety net feel more comfortable with taking on financial risks that have big upside, like starting a business or investing in stocks. 

If you want to go beyond that, set them up with assets that generate enough income to live comfortably and happily.

How Long Does Generational Wealth Last?

It is up to the next generations to manage the family estate well and make sure it lasts.

Many wealthy families end up losing their wealth within the next one-to-two generations.

It is generally assumed that 70% of wealthy families lose their wealth by the second generation and 90% by the third.

However, these numbers lack evidence and may in fact be a myth worth debunking.

If you assume 70% of wealth will be gone, you lower expectations of your children and as a result you risk lowering their efforts.

Knowing it is a myth can empower you to build your legacy. Focus on making sure that wealth lasts longer.

Teach your kids to manage finances.

Build good financial habits and values into their education when they are young.

It is generally assumed that 70% of wealthy families lose their wealth by the second generation, but these numbers lack evidence and may in fact be a myth worth debunking.

Teach them financial literacy.

Bring them into the family business early and teach them how to run it properly.

Create revenue streams for your family, instead of just amassing money in a bank account.

These revenue streams could be used by your kids and grandchildren without using up the assets themselves.

Examples of revenue streams include a family business, owning revenue-producing properties, and stocks that pay out dividends. 

How do I Start Generational Wealth?

Building generational wealth for your heirs starts with you.

Improve your skills and education to produce a higher income. Spend less than you make and invest the rest of your earnings.

Transfer your knowledge, habits, and values to your children. Teach them to manage money well.

Build up assets over your lifetime. Give monetary gifts to your kids and grandkids.

Open a bank account for your kids.

The best savings accounts for kids will teach them financial literacy and grow their savings with high interest.

Leave an estate for your descendants.

How are Generational Wealth Transfers Taxed?

There are three taxes apply - gift taxes, estate taxes, and inheritance taxes.

Wealth that you transfer to your children and grandchildren in your lifetime is not taxed.

However, it may count towards your estate’s lifetime exclusion amount as monetary gifts.

Any amount given beyond the annual gift exemption rate in a calendar year to the same recipient will be added to your lifetime gifts total and reduce your estate’s exclusion amount.

A federal estate tax may apply for people who leave a combined gross assets and lifetime taxable gifts that exceed the basic exclusion amount set yearly by the IRS. 

There are three taxes that apply - gift taxes, estate taxes, and inheritance taxes.

In 2023, estates that have a value higher than $12,920,000 need to file a federal tax return and pay taxes on the portion above the exemption.

Estates that are passed on to a spouse or minor children may be exempt from the federal tax.

The federal estate tax is taken out of the deceased person’s estate, not from the people inheriting it.

An inheritance tax comes out of the portion that a person receives after any estate taxes were already taken.

An inheritance tax may affect people inheriting wealth, depending on the state they live in. There is no federal inheritance tax.

Today, the thresholds for estate taxes are very high. In fact, less than one percent of estates owe estate taxes.

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