Leave a Legacy: Building Generational Wealth
What is generational wealth?
The basic generational wealth definition is wealth passed from one generation to the next. Generational wealth can include: money, investments, life insurance, and real estate. It can also include things like a family business, a collection of valuable watches, or other tangible items. But, importantly, intangibles are also an essential part of intergenerational wealth, especially the lessons you teach the next generation about personal finance.
By equipping your children with the tools to manage their inheritance, they'll learn how to grow wealth and how to keep wealth in the family for future generations.
Generational wealth isn't limited to what happens after you pass away. You can also create a living legacy by paying for a home, a car, or your child's college education. All of these reduce the next generation's debt burden. Paying for education is particularly impactful since people with a college degree have significantly higher earning potential than those without one.
How to create generational wealth
Creating generational wealth takes intentional action and careful planning. It requires balancing the resources to support your lifestyle with preserving the assets you want to pass down. The first step is to ensure that you're on track with your retirement plan.
Be sure you're saving enough money and that it's growing at a rate that will provide the income you'll need. You should consider taking full advantage of the retirement benefits offered by your employer and contribute as much as you can to your 401(k) or IRA. You should also think about eliminating debt to avoid any complications with settling your estate.
Once your own oxygen mask is secured, you can turn your attention to saving for the next generation. Start by defining the goals for your legacy by asking these questions:
- Who do you want to endow? This list may include your children, grandchildren, or other members of your family.
- What would you like to pass down to them? Money is usually the first thing that comes to mind, but consider the tangible items that may also be important to you and your heirs.
- Are there living legacies you want to provide while you're still alive? Education and financial support are the most common.
- At what age would you like your heirs to receive their inheritance? Factors like maturity, family status, and level of responsibility will impact this decision.
- Who else do you need to engage to put your plans into place? Estate planning can be complicated. Decisions should be made with legal and taxation implications in mind. Depending on your level of expertise, you may want to identify generational wealth advisors, lawyers, and accountants who specialize in estate planning.
Next, consider how to maximize the wealth. Saving money is a good start, but since ordinary savings accounts don't typically offer long-term growth, you may want to explore other investments. If you're new to investing, our guide to investing for beginners will help explain the risks and potential returns associated with stocks, mutual funds, bonds, and other investment options. Buying real estate or starting a family business to provide income and job opportunities for the next generation can also offer substantial potential to create wealth.
Finally, consider ensuring will is up to date and whether to create a trust to hold the assets in your estate. A trust can provide several benefits to help facilitate a smooth transfer of assets and minimize estate taxes after your death. An estate planning attorney can help you understand the details and guide you through the decisions to ensure that your plans are properly carried out.
Life insurance can be an important part of your legacy
The traditional purpose of life insurance is to protect the financial well-being of your family after your death, but it can also be part of your generational wealth plan. Buying a term life insurance or whole life insurance policy is an excellent way to add value to your estate.
Life insurance payouts aren't generally taxable. If you have a trust, you can name the trust as the beneficiary and then define who ultimately receives the money in your trust documents.
Check your price for life insurance online with Ethos today. We'll help you select a term life insurance policy that fits within your generational wealth plan's budget.
The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs.