Generational Wealth Planning: A Guide to Wealth for Your Grandchildren and Beyond

Posted by: Joseph Kuo | July 9, 2021

As you advance in your career and build wealth, there will come a point when you will have enough money to provide for your desired lifestyle in retirement. At this point, many people start thinking about the meaning of what they've created and the lasting impact of their lives to their children, grandchildren, and other family members.

After spending years working to earn a living, people are proud to leave behind a legacy and help their future generations to be better off. But there’s a common saying regarding generational wealth: “Shirtsleeves to shirtsleeves in three generations.” There are many variations of this saying across different cultures, but the idea is that most wealth that is bequeathed will be used up by the grandchildren’s generation.  Frequently, this is because the third generation, which grows up without seeing how the wealth was created, is never taught to manage it in a healthy way.

With that being said, there are things you can do now to proactively protect your wealth and your heirs. Developing a generational wealth plan, communicating with your loved ones, and working with a team of professionals can give your wealth a better chance at lasting for generations to come. Here’s how you can approach estate planning in a way that will last for generations, otherwise known as generational wealth planning.

Creating a Generational Wealth Plan

A generational wealth plan consists of two parts. First, the legal documents that outline the terms for the transfer and control of your wealth. Second, a detailed plan outlined in a way that clearly states your intent and wishes and makes it easy for your beneficiaries to carry out the plan.

Both these parts can be created by your legal counsel working through your financial planner or with you directly. To provide them with the information they will need, there are several steps you can take now to begin the planning process.

Think Ahead, Far Ahead

It’s important to remember that generational wealth planning is a bit different from designating gifts for your kids and grandkids through estate planning. When you start making a generational plan, you need to consider not just your children and grandchildren, but their children and grandchildren. In other words, generational wealth planning accounts for descendants not born yet who you likely will never meet.

When planning that far into the future, it can be hard to try to consider their needs alongside the family members you already know and love. You might also be worried that the transferred wealth will lower the motivation and drive of future generations.

A great way to start is to work out the values that you want to pass along with your wealth. Think of a mission statement or a set of value that could go along with your wealth.  Give the future generation a “North Star” to aim for, while still giving them the freedom to achieve it in their own way.

Have Conversations With Your Family

If you want your wealth to last for generations, it’s crucial that you communicate your desires with your family. Everyone must be on the same page when it comes to leaving a legacy for future generations, because spreading out the wealth over more generations means your children and grandchildren might get less of it.

You are your family’s best resource for wisdom and guidance when it comes to this, so don’t make the mistake of thinking that your money and values need to be kept secret. Take the time to educate your children and grandchildren and share your vision with them. This way, they aren’t left feeling confused and frustrated when you can no longer be there to explain your decisions.

This is an ideal opportunity to involve your financial advisor, as they can help you communicate your vision and answer any of the more technical questions your family may have. It’s also a great occasion to create and share family stories- tales of how things came to be. Just as ancient civilizations passed down their traditions through storytelling, you can do the same to bring your visions and guidance to life and paint a picture of you for your future descendants.

Put It in Writing

Your heirs are the ones who will be carrying out your generational wealth plan after you are gone. So, putting your plans in clear and unambiguous writing can rid future generations of potential doubt or confusion regarding your wishes.

Make sure you specifically identify how the money should be used, accessed and replenished. It is also important to clearly specify who will be in charge of the actual administration of your assets. With proper planning, it’s possible that your money could be used to invest in higher education, starting a business or other things that will help your family grow their wealth for decades to come.

Create a Support System

Do you know what a sustainable withdrawal rate is for your assets? It’s possible you may not. And if you don’t know, it’s highly unlikely your heirs will know either. Understanding a sustainable withdrawal rate, along with a number of other technical details, is an important part of maintaining wealth for decades to come. This is why working with the right system of financial professionals could be your greatest chance at successful generational wealth transfer. They will have the advantage of working one-on-one with you to determine your goals, develop a plan, educate your heirs and help them stay on track.

If you think you’re ready to start creating a generational wealth plan, remember to have a clear vision and share that vision with your family members. These wishes should be codified into clear legal documents to minimize confusion and ambiguity. Your trusted financial professional can help you begin the planning process and answer any questions you may have.

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