How to Build Generational Wealth
March 3, 2023
Generational wealth refers to the assets passed down across multiple generations. Building generational wealth is a careful and systematic process that evaluates many lifestyle factors. These considerations include financial education, saving habits, and a general understanding of economic influences.
Well-planned generational wealth provides future generations with additional life opportunities. For example, individuals can focus on improving their careers and personal development while having their property and education expenses covered.
Freeing children and future generations from worrying about sustenance empowers them to pursue their passions and opens doors to limitless opportunities to succeed in life and preserve the family name.
The Steps in Building Generational Wealth
Building generational wealth begins with an awareness of the importance of passing assets down the family tree. First-generation wealth builders need to assess their budget allocations for achieving milestones such as settling a mortgage, university tuition fees, and more while factoring in modifiers such as inflation and healthcare emergencies.
Generational wealth does not end with your immediate children. The meticulous process accounts for multiple generations, gradually involving the next generation in the planning since they eventually inherit duties in wealth-building.
Encourage Financial Literacy
Teaching children about personal finances, saving practices, and wealth planning can help them become financially literate and think about their future. Also, parents must provide their children with the skills required to become economically independent adults.
Parents should consider teaching their children various financial concepts at different ages. For example, preschoolers can learn the importance of saving for a rainy day. Similarly, parents can encourage teenagers to set a portion of their part-time salaries into savings plans.
Establish a Business Empire
Successful business ownership and well-planned succession can result in asset appreciation passed down through the generations.
Some parents involve their children in the business from a young age to encourage interest in eventually taking over the operations. On the other hand, children who lack interest in maintaining the establishment may choose to sell their ownership to increase their generational wealth.
Additionally, business owners can help formalize and optimize estate planning by qualifying for tax benefits (e.g., gifting ownership interests and creating trusts) and other flexible perks. A business could lead to a fuss-free process of building and transitioning generational wealth.
Plan the Inheritance Structure
A carefully organized inheritance plan ensures a smooth transition of generational wealth. The lack of a proper estate plan could result in the loss of wealth and conflict among loved ones.
An estate plan helps families distribute assets according to the wishes of first-generation wealth builders that they pass on while providing young children with the necessary financial support for their care and upbringing. Setting up a will with clear instructions and requirements can help families enforce the terms enclosed through smooth inheritance procedures. Also, a will keeps families from leaving the final decision to the probate court and state, often resulting in lengthy and costly intestacy procedures.
First-generation wealth builders can also choose to set up a trust fund to reserve assets for specific beneficiaries, especially minors with special care and needs. Account holders should also pay careful attention when nominating beneficiaries to ensure proper wealth distribution to the respective parties.
Manage Life Insurance Plans
Insurance policies such as term life plans offer optimal risk management for loved ones in the unexpected event of death, critical illness, or disability of providers within the household. Aside from settling costly medical and surgical treatment fees, a comprehensive insurance plan replaces income to maintain undisrupted cash flow.
Thorough insurance planning alleviates the expenses and stress during grief to help loved ones cope with times of crisis. However, there is no standard life insurance plan that fits all.
Life insurance coverage should factor in daily expenses while funding life goals such as education and retirement. Therefore it is essential for first-generation wealth builders to discuss the details with a trusted financial expert for the most suitable arrangement.
Parents may consider going through their insurance plans with their children as they come of age. A guided approach to life insurance informs the next generation about the practicalities of setting up a safety net and instills a sense of preparedness for the future.
Closing Thoughts
While first-generation wealth builders face the tall order of securing the future success of loved ones, they leave a lasting legacy.
Collaborating with a specialized financial specialist in the wealth-building process eliminates the risks of money FOG (fear, obligation, and guilt) that often result in poor financial decisions and outcomes. First Western Trust offers more than two decades of expert advice and support to help individuals plan and build their generational wealth with confidence based on their specific life priorities.
Schedule an appointment with a local banking and financial expert at First Western Trust to safeguard your family’s future starting today.
