Generational Wealth is Built Intentionally Over Three Phases

If you are fortunate enough to achieve financial stability for yourself, you have the opportunity to leave a legacy for the next generation. Whether you’re continuing a legacy that a family member began or the first in your family to begin one, there are three phases to building generational wealth:

• Accumulation – the earning years, when you’re controlling expenses to maximize savings and investments, with protection measures for unexpected adverse events
• Preservation – when you’ve built up assets and shift into protection mode, minimizing tax impact and preparing them for ease of future transfer
• Transfer – the time for revisiting and finalizing plans for the distribution of your estate and introducing your family members to the advisors who will work with them in the future

Remember that building generational wealth is often built gradually over more than one generation. Look at it like building a snowball that future generations will take and add to for the next. And most benefactors have experienced, trusted advisors to help them make solid decisions that include different considerations during each phase:

Accumulation

Beyond incremental savings and retirement accounts, you’re intentionally concentrating on making investments that can generate additional income over the long term. This takes different forms, but it could include building a business or investing in real estate, creating a product, or making some high-risk investments that are successful.

Most importantly, it’s time to create a diversified portfolio. In addition to a taxable investment account, this could include tax-deferred accounts like an IRA/401k/SEP-IRA. Maintaining sufficient liquidity is also critical so you aren’t forced to liquidate assets during a market downturn.

Invest in education for your children throughout their lives. Prioritize learning opportunities for financial literacy and teach them sound financial decision-making methods. Impart your personal philosophy and values around wealth. This builds a solid knowledge base for taking over the “snowball” you transfer to them and prepares them to keep it rolling.

One final tip is to insure against unexpected adverse events with various types of insurance like disability, life, property and casualty, and perhaps an umbrella policy. No matter your age, create a solid estate plan including a will, advanced directives, and powers of attorney for finances and health.

Preservation

Once you’ve built up wealth to manage, it’s important to consider options for protecting these assets and minimizing tax impact. Wealth protection often involves various types of trusts. Generally speaking, irrevocable trusts might provide asset protection and some tax benefits, while revocable trusts assist with probate avoidance and make life easier for a surviving spouse and family members. Trusts can also be used to defer or reduce income taxes.

This is a good time to reassess insurance needs and plan for medical care. Some wealthy people prefer to self-insure and pay out of pocket, while others might buy a long-term care insurance policy. A trust and wealth advisor can walk through the options with you.

Transfer

During this stage, it’s important to revisit the estate plan to ensure it’s still appropriate. Make sure that any person named as executor, trustee, or agent is still willing and capable of serving. If you are using a financial institution to handle your estate or serve as trustee, meet with your advisor and discuss how the plan will work. If appropriate, introduce your family with the advisors that will be working with them in the future.Lastly, if you are charitably inclined, this is a great time to begin implementing any philanthropic goals you may have. It’s rewarding to give to charities, and it multiplies the effects of your legacy, benefiting people beyond your immediate circle. When you give while you’re still living, you get to see the results, while gifts in your will and the legacy of charitable giving you imparted to your heirs extend the beneficial effects even after you’re gone.