Many people believe that generational wealth is a myth. However, we know that wealthy individuals and families have passed their assets from generation to generation for years.
What secrets do the rich have that we are struggling to discover? The key lies in assets and information. You need both to successfully pass along your fortune.
What is generational wealth? Generational wealth is passing down assets from one generation to the next. An asset is an investment that pays money.
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The average person believes leaving a house or bank account to their children is generational wealth; however, this doesn’t pass the asset test.
Most primary residences don’t make the owner money. To convert your main home into an asset, you must make it into a business or create rental income from roommates or by sharing.
When the children obtain the home, they usually sell it and use the proceeds frivolously, or they will pay off their current home. Sure, the cash gives them a shot in the arm, but it is not “long money.”
What is long money? Sometimes we need to put measures in place to protect the estate as a higher priority than the kids’ happiness.
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I wish we could all trust our kids to be good stewards of the resources, but there may be other factors at play. They may need to cover an urgent debt, or maybe their spouse wants the cash.
We can put things in motion, like land trust and irrevocable trust, to ensure our assets go a long way into the future.
We build “long money” within our family tree by taking these engineering and administrative measures. We can also give the kids the knowledge to continue family operations.
Give the information to the kids. We can’t just hope our future generations obtain financial education randomly along the way.
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We have to constantly and consistently feed the information to them, which helps them be part of the team.
The book “Make Your Family Rich” recommends having a monthly family meeting and running it like a business call. You are the CEO, and the kids are department heads.
You can introduce any outside players during these meetings. Some key personnel will be lawyers, real estate agents, lenders, insurance agents, and tax preparers.
Your family is a business. Begin to treat your family as a business. It sounds harsh, but true love comes from ensuring we have the necessary resources to live how we want.
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My grandfather ensured he had long money by purchasing land and developing real estate. Today, these assets are still in the family, earning a return on his investment.
We can similarly pass along our assets if we start preparing now. Let’s review some of the assets we can pass along.
Your job is not an asset, but a business meets the criteria. Many people focus on their jobs as a source of wealth. They save religiously into their 401Ks, thinking the 401k will protect the family later in life.
Conversely, building a business (big or small) creates a legacy. Your family can use the company to grow, leverage, or sell.
Sure, we all need to work a job at first, but do we want to dedicate 50-plus years to a place that will not even hire our kids or grandkids?
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Dividends for the win! A dividend growth portfolio is a perfect asset to leave to the family. You get the growth of index funds and the cash flow of an income portfolio.
There are many ways to grow your wealth via dividends; however, be aware of retirement accounts like 401k, HSAs, Roth IRAs, and Thrift Savings Plans.
When you pass them along, your heirs have ten years to liquidate the resources. With a Roth IRA, the distributions will be tax-free, but they still must take all the money out in 10 years.
If you build your DGI portfolio in a taxable brokerage, you can ensure the kids don’t have to sell anything. They also benefit from a step-up basis, which neutralizes capital gains upon death.
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You can consider putting your DGI portfolio in an irrevocable trust where you can determine how much the trust pays in dividends. You can also set an amount to reinvest, say 30%, ensuring the money never stops growing.
Real Estate is critical. You can also put real estate in an irrevocable trust. It can serve as rental property that pays your kids’ distributions for life.
Can you imagine your trust owning a mortgage-free 100-year-old home? It will require upkeep, but your kids can make a good wage from these properties.
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The rich are already doing these things. We are late to the party, but we can start building today. It begins with a mindset of wanting to ensure our kids are doing well.
The most challenging part for us middle and low-income people is understanding that our kids need us. We like to say that we made it all by ourselves, and our kids can do the same.
But at what costs did we make it on our own? Did we work late hours, separate our families, move from state to state, get divorced, go through bankruptcy, etc.?
Do we really want our kids to have the same struggles as us? Are we mentally healthy from all the pressure we endured to climb the corporate ladder or work multiple jobs?
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Conclusion. I don’t need my kids to climb the corporate ladder and buy three homes. I’ve already done that.
I would rather my kids focus on growing the King Family Empire than starting one independently. They can build upon my book royalties, develop our land, or expand the dividend portfolio.
Generational wealth is a mindset; sadly, most poor people don’t see the reason to pass things to their kids. Do you want your kids to start from zero to prove something to some anonymous person?
The wealthy don’t send their kids into the world at 18 without tools, resources, and information. We do this thinking it will make them great. Sure, 5% will overcome this adversity, but at what costs? How will you help your children?
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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