Wealth can be so much more than just money and possessions. True generational wealth encompasses the values, wisdom, and knowledge passed down to empower future generations. With intentional planning and open communication, families can set themselves up for successfully transferring assets while also imparting character and stewardship.

 

 

What is Generational Wealth?

 

Generational wealth refers to the assets, usually financial, transferred down from one generation of a family to the next. This includes investments, real estate, businesses, cash, and other monetary assets.

 

Equally important is passing down things of value that cannot be quantified – wisdom, faith, responsibility, perspective on money, work ethic, and priorities. The intangible yet priceless lessons and virtues instilled in children become part of their character. This provides meaning and purpose behind generational wealth beyond just accumulating money and possessions.

 

 

Why is Generational Wealth Important?

 

The Bible encourages stewardship – managing wealth responsibly for God’s purposes. Proverbs 13:22 states, “A good man leaves an inheritance to his children’s children.”

 

Generational wealth allows each generation to embrace their legacy and build upon it. Family trees can be forever changed when resources are leveraged for honoring God.

 

Managing and maintaining wealth well requires intention and wisdom. Alarmingly, only 30% of families succeed at passing down their wealth to the next generation. By the third generation, nearly 90% of families lose all their wealth.

 

A driving factor is lack of communication about finances. Despite good intentions, many parents are unwilling to discuss money and never teach their children how to manage wealth. Families fall into a “shirt sleeves to shirt sleeves” cycle, as assets built by one generation are squandered by the next.

 

 

How to Build Generational Wealth

 

Establishing generational wealth requires a strategic process over time. It cannot be rushed or circumvented. Consistency and discipline are key.

 

Create a Solid Financial Foundation

 

It’s impossible to build wealth while drowning in debt. The first priority is becoming debt-free, except for your home mortgage. Additionally, save 3-6 months’ worth of living expenses in an emergency fund before investing.

 

Debt and lack of savings are like constructing a house on sand. Life’s inevitable setbacks and storms will keep eroding progress without this firm foundation. Don’t skip this vital groundwork!

 

Invest 15% of Income for Retirement

 

Once debts are paid off, income becomes available to begin investing for the future. Consistently investing 15% of gross household income into retirement accounts like 401(k)s and Roth IRAs is proven to generate sufficient wealth at retirement.

 

When invested correctly over 20-30 years, this 15% savings rate empowers families to live comfortably, handle unforeseen expenses, and pass on assets to heirs. Work with an investment professional to select proper growth stock funds within retirement accounts.

 

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Pay Off Your Home Early

 

Imagine life without a mortgage payment. The average monthly payment exceeds $1600 currently. Eliminating that frees up substantial income to accelerate investing and wealth building.

 

Millionaires typically pay off their homes in just over 10 years through making extra mortgage payments. Without that large monthly bill, additional money can be invested into rental properties, starting a business, or maximizing retirement contributions. Use a mortgage payoff calculator to determine your target payoff date.

 

Teach Your Children About Money

 

A parents’ responsibility goes far beyond just leaving an inheritance. Raising money-smart kids equipped to steward their finances and generational wealth is a priceless gift.

 

Discussing money regularly, admitting mistakes, and modeling wise habits powerfully demonstrate important principles. Expand their knowledge and skills in spending, saving, budgeting, and generosity from a young age.

 

 

How to Pass On Generational Wealth

 

Smoothly handing off wealth to the next generation requires intentionally completing proper legal documentation and estate planning.

 

Write a Will

 

Every adult over 18 needs a will, regardless of marital status or if they have children. A will legally dictates how assets will be handled after you pass away. Requirements vary by state – if you move, your will must be updated.

 

For married couples, mirror wills contain nearly identical provisions for each spouse. Online services like Mama Bear Legal Forms simplify creating legally binding wills in under 30 minutes. Don’t delay this important task.

 

Set Up an Estate Plan

 

Estate planning involves strategizing to transfer assets and execute your will. Individuals with assets over $1 million may require sophisticated trust structures best designed by estate planning attorneys.

 

Estate planning also minimizes taxes owed. Married couples can double federal estate tax exemptions with proper estate planning. Work with qualified professionals to implement strategies maximizing wealth transfer and minimizing taxes.

 

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Prepare a Legacy Drawer

 

A legacy drawer contains important documents and information your family will need if something happens to you suddenly. Suggested contents include:

 

– Will and estate plan documents

 

– Financial account info

 

– Insurance policies

 

– Tax returns

 

– Funeral wishes

 

– Passwords

 

– Budget

 

– Letters to loved ones

 

Carefully organizing this gives loved ones access to what they need efficiently.

 

 

How is Generational Wealth Transferred After Death?

 

The primary way generational wealth is handed down is through inheritance. Inheritances are comprised of assets like cash, real estate, investments, businesses, and personal property that transfer ownership when the benefactor dies.

 

Estates worth over $12.06 million owe federal estate taxes – up to 40% of assets above that threshold. Beneficiaries may also owe state inheritance taxes depending on location, though spouses and direct descendants are often exempt.

 

Navigating complex tax implications requires working with knowledgeable financial and legal professionals. With proper planning, taxes can be minimized to pass on as much wealth as possible.

 

 

Transferring Wealth While Still Living

 

Beyond leaving an inheritance, there are also powerful ways to pass on generational wealth while still alive.

 

Save for Education Expenses

 

Helping children and grandchildren graduate college debt-free sets them up for financial success. Consistently contributing to 529 plans or Educational Savings Accounts enables accumulating thousands of dollars before high school graduation.

 

Make Financial Gifts

 

In 2022, individuals can gift up to $16,000 per person, $32,000 per married couple, gift tax-free. With two children, that equals $64,000 that can be gifted annually without owing gift taxes. Over time, large amounts can be transferred.

 

Pass on Knowledge and Wisdom

 

Gathering as a family to play games, pray, and study scripture provides opportunities to share wisdom and life lessons. Reading books together sparks deep conversations. Attending conferences and courses side-by-side facilitates discussing important topics.

 

Modeling generosity in giving and service also powerfully imparts values. Seize every chance to enrich future generations with intangible yet invaluable wisdom and character.

 

 

Conclusion

 

With purposeful planning and priority, families can successfully transfer wealth across generations. Maintaining open communication about finances equips the next generation to be good stewards. Equally important is passing along faith, values, knowledge, and skills to stand the test of time. Building a lasting legacy requires diligently stewarding all that God has entrusted to your care.

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* This content is for informational purposes only and is not intended as financial or legal advice. Please consult with a professional advisor before making any investment decisions.

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