Gone by the third generation

[marko]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

That IS what they do. And it's why most wealthy families encourage having few kids as it mitigates what's known as "wealth rot" (actually goes by another name) See my post #33

 

[Koolau]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

The kids' grandparents left the kids money in trust. The TRUST ate up virtually all the gains that the trust earned with the trust money. I fought with them for several years and they made promises to cut their fees but they never did. For something like 4 1/2% of the funds/year, the trust company provided quarterly reports and churned the accounts with their buddies. Trusts sound fine in principle, but execution can be devastating to the funds held in trust. YMMV

 

[Surewhitey]

We're 1st builders in our world. Grandparents on both sides left ~$18-20k to their kids in the 90s. Pop had a very little, ~$3k ea sibling. Mom is still kicking with ~$150k and will probably spend it all, as she should.

Sister and hubby are ~$300k and in their 50s. Not savers by nature.

Our kiddo is doing well without our help other than paying for college and wedding. They are in the 7 figure NW club as of recently and ~40 years old... Basically where we were at their age. We'll have to see how their 2 rugrats do in the future.

 

[street]

Why can't there be a legal clause that only requires that family and main principals written out for the next decade that they can only take 3% of the investment for a given year.

 

[Time2]

It will still get watered down eventually. My parents had 5 children, 13 grandchildren and (so far) 23 great-grandchildren. Some of the grandchildren are young enough that they may have a couple more.

Exactly, no matter the amount it keeps getting split by more and more heirs

 

[Music Lover]

Not everyone has the talent or desire to run a business, even if their parents were very successful at it.

It may be easier to run an existing business that to create a new one, there's no guarantee.

 

[TheWizard]

Not everyone has the talent or desire to run a business, even if their parents were very successful at it.

It may be easier to run an existing business that to create a new one, there's no guarantee.

It's not always critical to be running the family business to maintain wealth.
You can simply get an advanced degree in law or a STEM field and make a decent income, $200k per year per adult say, and just let most of your $10M inheritance keep compounding.

I think Marko did something like this.

But you need the proper mindset and motivation.
Otherwise, why even bother with college if you already have a $10M nest egg at a young age?

 

[athena53]

It's not always critical to be running the family business to maintain wealth.
You can simply get an advanced degree in law or a STEM field and make a decent income, $200k per year per adult say, and just let most of your $10M inheritance keep compounding.

I did this on a much smaller scale. Math degree, never hit $200K per year, but when I inherited $244K from Dad in 2021 I was retired and at a point where I didn't really need it. It's going to the grandkids' education, charity and a few fun family things.

 

[GravitySucks]

I don’t know. Kennedys,Rockefellers, and Morgan’s seem to be doing ok. Saw an article on Andrew Carnegies great grand kids all having very good paying jobs even though almost all his money was given away.
Even the Austrian Hapsburgs are doing alright - saw one was driving in F3, not a cheap hobby.

 

[Al18]

It looks like the foreclosure of Graceland was a scam, and it’s now being investigated by the Attorney General AP

 

[marko]

It's not always critical to be running the family business to maintain wealth.
You can simply get an advanced degree in law or a STEM field and make a decent income, $200k per year per adult say, and just let most of your $10M inheritance keep compounding.

I think Marko did something like this.

True. But in this case there hasn't been a "business" per se in almost 100 years, and technically it's not even an inheritance. It's mainly a chunk of money held in a trust, generating income, that pays beneficiaries.

Think of it more as a "no show" job where you get paid but have no real or legal stake in the company itself.

 

[Chuckanut]

Exactly, no matter the amount it keeps getting split by more and more heirs

We need to return to the days where it was all left to the oldest son, the girls were married off to some other man's family, and the younger sons joined the military with the promise of being rewarded with land stolen from indigenous people in another country.

 

[SecondCor521]

Why don't really wealthy people set up some sort of trust. Put a spare billion in there and have rules such that it is invested in total stock market and only 2% after taxes each year can be spent by verified descendants.

In addition to the other good comment you saw, there is a pervasive notion that trusts are somehow a good income tax shelter.

The truth is that trust income is taxed very aggressively - more aggressively than ordinary income for individuals - unless it is distributed out of the trust. And income distributed out of the trust, by definition, no longer is in the trust. And therefore not growing the trust corpus and not protected by the trust.

You can confirm this by going to look at the instructions for a trust income tax return, which is form 1041. I believe the taxes are calculated in Schedule G.

Trusts can provide some benefits, but avoiding federal income tax isn't one of them AFAICT.

 

[Fermion]

In addition to the other good comment you saw, there is a pervasive notion that trusts are somehow a good income tax shelter.

The truth is that trust income is taxed very aggressively - more aggressively than ordinary income for individuals - unless it is distributed out of the trust. And income distributed out of the trust, by definition, no longer is in the trust. And therefore not growing the trust corpus and not protected by the trust.

You can confirm this by going to look at the instructions for a trust income tax return, which is form 1041. I believe the taxes are calculated in Schedule G.

Trusts can provide some benefits, but avoiding federal income tax isn't one of them AFAICT.

If I were a billionaire, I doubt I would base my trust in a high tax country. You could still pay descendants in the USA even if the trust were based in Ireland or somewhere. They would be responsible for personal income tax on the payouts, right?

 

[SecondCor521]

If I were a billionaire, I doubt I would base my trust in a high tax country. You could still pay descendants in the USA even if the trust were based in Ireland or somewhere. They would be responsible for personal income tax on the payouts, right?

I don't know much about international taxes, sorry. But yes, I do believe US citizens would be taxed according to US tax law even if the income was from a trust in Ireland or elsewhere.

If there were a foreign country that had everything billionaires were looking for - stable exchange rates, ability to hold US investments, good tax treaties, low trust tax rates, and a stable government to name a few - I think we would have heard of them by now. The Cayman Islands, Bermuda, and Switzerland might be the best. I'm not really sure though.

 

[Gremlin]

We need to return to the days where it was all left to the oldest son, the girls were married off to some other man's family, and the younger sons joined the military with the promise of being rewarded with land stolen from indigenous people in another country.

As a Jane Austen fan, I appreciate this comment.

 

[RetMD21]

It looks like the foreclosure of Graceland was a scam, and it’s now being investigated by the Attorney General AP

I don't understand all the details but if the notary is saying that he/she didn't witness the signature it isn't looking good

 

[Chuckanut]

As a Jane Austen fan, I appreciate this comment.

Lest you think me an old fashioned chauvinist, I assured my kids that all I have is split evenly between them. And if one passes before me but leaves grandkids, the grands get their parent's share.

 

[TheWizard]

Lest you think me an old fashioned chauvinist, I assured my kids that all I have is split evenly between them. And if one passes before me but leaves grandkids, the grands get their parent's share.

Per Stirpes, checko...

 

[RetMD21]

The old adage of wealth going “shirtsleeves to shirtsleeves in three generations” is called to mind by today’s news story of Elvis’s granddaughter trying to save Graceland from foreclosure.

It’s cited that 90% of wealth is lost by the third generation, and the pattern is typically (if reductively) cited that Gen 1 are the builders, Gen 2 are the maintainers, and Gen 3 are the squanderers.

What have members here seen play out?

NYT is d=saving that it is a scam based in Nigeria, lol

 

[athena53]

We need to return to the days where it was all left to the oldest son, the girls were married off to some other man's family, and the younger sons joined the military with the promise of being rewarded with land stolen from indigenous people in another country.

And entering the clergy. That was a common "vocation" for second and subsequent sons.

 

[Route246]

My parents were modest builders and left us about 2.4M after taxes and commissions to sell the house. They lived well below their means and saved like banshees. CPA recommended they gift my brother and I every year until the funds bled down to enough to pay for long term care as they lived fine on SS and savings in retirement.

I can only speak for myself as I don't know my brother's finances but the 1.2M I inherited a few years ago is 1.6M now in a 500 index fund. I feel this is a passthru and never thought to even consider spending it.

My wife and I are also builders and have gathered up a nice asset balance, far more than we could ever spend or use. We are trying to figure out now what to do with it. Giving it to grown children and lineal heirs is not looking very promising, mainly because it can demotivate a young person, something I was never subject to which made me save and live below my means, some say to excess. I wish there was a way to pass it on for use as a buffer, nest egg and emergency stash instead of a paycheck or as lottery winnings. It is my opinion that almost no good can come from giving free money to people who didn't earn it, myself included. I believe if I were a trust fund baby I would probably end up with very modest savings, no self-esteem and a financially stressful life. I didn't end up that way because I lived in fear of ending up that way, I guess.

 

[Lewis Clark]

This is among my largest concern when building wealth. I often find myself asking, "Will it all be worth it?"

My wife and I have no children. The only question I'm concerned with is "Will we have enough to support ourselves and pay for long term care?"

 

[cat4ever]

To be fair to the Presley clan, it seems the supposed forclosure on Graceland was a scam
Good for the granddaughter for standing up to them.

 

[Dash man]

I have an uncle who was a builder and rose to be the COO of a major corporation. He retired after a heart attack in the late 80s and retired to a beautiful 7,000 sq ft home in Arizona with a nice pension and tons of company stock. He was loyal to his company and chose to hang on to the stock investments. He put his kids through school, including one who went to an elite school and got his MBA. His four kids had about a dozen grandkids that he promised to put through college. It was/is a loving close family. My uncle and my aunt both lived into their 90s and just died a few years ago.
After going through the estate, my cousins were surprised to find a mortgage on the house that was used to pay the grandkids college tuition. Little was left as they were living on his pension and the stock of his former company had dropped to very low levels as they could not compete with new technology competitors. This caught them by surprise, though they never counted on anything.
Just goes to the importance of diversification.