You have money, and you want to eventually create a legacy for your heirs without seeing a large portion of it reduced by taxes. Whether you’re in your 20s, 40s, or even 60s, you might be in a position to create generational wealth for yourself and your children, grandchildren, and great-grandchildren.
At its core, multi-generational wealth planning is a long-term approach to managing, preserving, and passing down assets in a way that reflects your values and goals.
What Does Multi-Generational Wealth Planning Include?
Multi-generational wealth planning (or generational wealth planning) can bring together legal, tax, investment, and family dynamics into one cohesive strategy designed to help wealth extend beyond a single lifetime.
Core Components
Here’s what can go into multi-generational wealth planning:
- Estate and trust planning may use wills, revocable and irrevocable trusts, generation-skipping structures, and other legal tools to direct how and when assets pass to future generations.
- A tax-efficient investment strategy helps coordinate portfolios with current and future tax rules, using asset location, gifting strategies, and vehicles like dynasty trusts to help manage estate and transfer taxes while supporting long-term growth.
- Business succession planning establishes how ownership and control of a family business transitions over time. It also balances liquidity needs, leadership, and fairness among family members.
- Philanthropic planning may use donor-advised funds, private foundations, and charitable trusts to align giving with values while considering potential tax advantages.
- Family governance frameworks may include family constitutions, mission statements, councils, and meeting structures that clarify roles, decision-making, conflict resolution, and expectations for participation in wealth decisions.
Planning for Multi-Generational Wealth Inheritance
The old adage goes that most wealth fails to survive beyond three generations. Accurate or not, wealth inheritance planning should focus on how your beneficiaries will receive assets and how prepared they are to manage them over time.
Here are some strategies for how to plan for multi-generational wealth inheritance:
- Structured distributions vs. lump-sum inheritance: Many families favor staggered or conditional distributions over lump-sum inheritances to encourage responsibility and help reduce the risk of wealth dissipating within a generation.
- Incentive trusts: Trusts can tie distributions to milestones such as education, employment, or charitable involvement, allowing you to support desired behaviors and values from family members.
- Defending assets from creditors or divorce: Properly designed trusts and entities can offer a level of preservation against claims from creditors or ex-spouses.
- Education funding strategies: Families often use 529 plans, education trusts, or dedicated investment pools to fund schooling for children and grandchildren, integrating these with the broader generational planning
- Preparing heirs financially: Multi-generational wealth planning can include financial education, mentoring, and gradually increasing responsibility so future generations are better prepared to manage assets.
How Families Successfully Sustain Multi-Generational Wealth
Often-cited reasons for why family fortunes decline significantly by the second or third generation include lack of communication, planning, and shared purpose, rather than just investment performance. Families who sustain and grow multi-generational wealth usually:
- Take a proactive, long-term approach and continually update plans as situations change, instead of waiting until a transition is imminent.
- Coordinate estate, tax, investment, and governance decisions rather than handling them in separate silos.
- Communicate openly about values, expectations, and roles, often formalizing this through family governance structures.
- Invest in educating younger generations so they’re prepared owners, rather than just recipients.
Integrating multi-generational wealth planning with accurate, shared data across a family’s advisors can help reduce errors and improve tax and legal outcomes, especially as your portfolios become more complex.
How to Choose a Fiduciary Advisor for Multi-Generational Wealth Planning
Selecting a fiduciary advisor can be a key part of getting coordinated, conflict-free guidance. A fiduciary is legally obligated to put your interests first, which is especially important when these strategies will affect multiple generations.
When evaluating an advisor, look for someone who has experience working with multi-generational wealth and complex family structures, including businesses, trusts, and philanthropic entities. You also want an advisor who takes a collaborative approach, coordinating with your estate attorney, CPA, and trustees, reflecting how financial advisers coordinate multi-generational wealth planning in practice.
If you’re ready to take the next step, we can help connect you with a Carson advisor to support your planning needs.
FAQs
What is the difference between estate planning and multi-generational wealth planning?
Estate planning focuses on distributing assets at disability or death, while multi-generational wealth planning takes a broader view, coordinating investments, taxes, and family governance to help preserve wealth across multiple generations.
How do you build multi-generational wealth?
You can help build multi-generational wealth by creating surplus capital, investing it long-term through diversified and tax-efficient strategies, and preparing heirs to manage and grow those assets.
Is multi-generational wealth planning only for ultra-high net worth families?
While more common among high net worth families, multi-generational wealth planning can benefit any family that expects assets to pass across more than one generation.
What is the three-generation wealth rule?
The “three-generation wealth rule” is a commonly cited idea that family wealth is typically created by the first generation, maintained by the second, and often diminished by the third.
The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Cetera Wealth Services LLC, exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.
The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.
529 College Savings Plans Formatting requirements for the following disclosures are that they be in the same size font as the text in the major portion of the piece, but in italics:Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state’s 529.
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