Wealthbuilders are Generation Lovers!

Wealth builders who start early and have an investment plan in place are often very aware that whilst they are building retirement funds for themselves, they are actually even providing for generations to come. If I chat to clients who have substantial wealth – I mean those with over $2 mil in investments, like property portfolios, shares, and commercial premises for their businesses, etc., they are more concerned with building substantial wealth. This means that they are very aware they can retire comfortably off their current $2 mil. However, what is interesting is that they are nowhere close to quitting! They are, in fact, continuing to build their wealth for their legacy and to pass down to their grandchildren, and even great, if not great-great-grandchildren. It’s a lovely notion and such an honourable one. They love what they do; they don’t need to retire because they enjoy working and the more wealth they build, the happier they become, not because they intend to use it for themselves, but the pride they feel to pass their wealth on!

Intergenerational wealth transfer is a complex area and has to be dealt with very carefully. There is well-known, documented evidence that as wealth is passed down to each generation, so it evaporates. Each generation or cycle of generation has a different value they place on this money. What happens is, often the one who makes it passes it to the one who keeps it and grows it – often using financial advisers to assist, then the next ones to receive it tend to spend it. The following generation then starts the cycle again and builds it, passing it on, so in this way diluting the effect of this valuable money being dispersed.

The third generation spends it because they don’t value the work and love that went into making it (clearly how could they, from 50-70 years prior), they don’t understand or have not received the training to know what to do with it, and lastly they simply lack the financial acumen to make more of it. Obviously this is generalised, but my point is made here for a few reasons:

1. Why financial education is relevant in every generation
2. Why financial education should and can be passed down to children at home
3. Why the cycle of wealth shifts from one place to another, those who spend it help others to acquire it.
4. An example of how life cycle and “old money” is misused.

For intergenerational wealth building, there are a few options to maintain the longevity of this money through several generations:

1. Through trust structures with age-related release dates (I knew a guy at Uni who had to study construction management because the trust his grandfather set up for him said that he could only receive his annual trust funds if he was passing this particular course. I felt bad for this guy because he took over six years to complete his “designated” degree, when we were all finished in three years. Was it worth the pain just for the extra loot? I know today he is grateful that he stuck with it as he is a pioneer in his field and very successful, thanks to that grandfather who insisted he study on “monetary term”! This is not going to work for everyone, of course, and is quite harsh but an example of what can be done!)
2. Through holding tax-effective insurance bonds for grandchildren’s education
3. Through transfer of property already tenanted (or businesses) with passive income streams filtering to generations in the form of trust funds.
4. Through SMSF and the assets held in these to be transferred upon preservation age, meaning that these funds are only provided to each generation once adults reach age 55+.

These above options can be helpful in assisting each subsequent generation to learn financial responsibility.   But ultimately he who makes it calls the shots! And fair enough too!