Making Wealth Last

[Montecfo]

Hello all,

As this stage of life I find we have done the most of what we can to set the table for our ongoing retirement and just life.

Now, I find myself thinking about strategies to make enduring wealth to last for generations. Presently our son and our charities are primary heirs and thus our son would inherit most of our assets when we pass. As much as I like the idea of him inheriting what could be a very large sum (and trust him to use it wisely), I also wonder if there is a better way to do this. Namely by using trusts so that he (or his heirs) receive income and perhaps limited capital from the estate. This would allow the assets to grow over time and possibly benefit multiple generations, which seems attractive.

But there are downsides. It is much more complicated, and are you creating "trust fund kids" who lack motivation and may thus stray into unproductive pastimes.

There is no way to eliminate all risks obviously but I am sure many of you may have tackled this question and have valuable perspectives.

I hope some are willing to share them. That would be appreciated!

 

[MichaelB]

We chose to help our grandchildren by funding 529 accounts. We figure this is the best way to help them develop their talents and prepare for life. Subsequent generations are too far away from us and we don’t have the resources to go there.

 

[aja8888]

Seeing I have no grandchildren, and won't have any going forward, my only concern is leaving my funds to my only living daughter. Pretty easy.

 

[bigcmagor]

I know of several examples of trusts being established to do what you describe that were ultimately challenged and dissolved by the beneficiaries. One of these was a church.

 

[target2019]

The responsibility of the wealth giver is to educate and encourage the receiver about financial well being.

 

[Mr_Pink]

We provided our millennial DD (married with one child) with a large gift (not enough to FIRE) that was about 1/2 of what we would have left her had we left earth last year. We decided to do this because DD and DSIL are both public school teachers and houses here in SE VA seem to be pushing $500K+ (we're talking your basic new 3 bdrm, nothing fancy). This enabled them to buy a new house with enough of a down payment so their mortgage is approx what their rent would be, and now with a new house, new car, some money in the bank, they're in a good place to save during a decent market and not have to ask for anything, except babysitting, which is why we moved down here. After a year, I don't miss the money that I did not need, and we get to watch it being used.

 

[COcheesehead]

No heirs, but we still have a desire to use our wealth to help others so we created two scholarships. They likely will live in perpetuity.

 

[Markola]

There are many prior inheritance and legacy threads on this topic. Not an easy problem. Ultimately, each person or couple’s situation and values are unique, and people’s choices and comments end up ranging from Charity/Hope the Charities Use It Well Forever, to BTD/Die with Zero, to Trusts and More Trusts/Hope It Lasts But Without Causing Generational Wreckage.

YMMV and Best Wishes.

 

[GrayHare]

529s are a good option. If the amount you leave is large enough, it can fund a foundation whose purpose is as you specify.

 

[CalBird]

Spend it as much as possible so you don’t create good times to create weak men.

Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.

 

[Montecfo]

The responsibility of the wealth giver is to educate and encourage the receiver about financial well being.

I get that and it has been my strategy to date. Might be the best one.

 

[MuirWannabe]

We have 3 children and 6 grands. By the time we leave thirds to each of the kids, our estate will most likely be divided up enough. Although it seems like they will each receive a large inheritance, it’s just not large enough to think beyond these two generations after us. We see the inheritance going to our children as also benefiting the grandchildren. Our kids love their kids as much as we love our kids, if that makes sense. In addition, as mentioned, we already gift to the grands for future education.

Meanwhile we help out with nice vacations for them all with us since we are definitely not above bribing for time with them. It’s actually our pleasure.

 

[street]

It is a good problem but not an easy problem to solve. I really believe this finally stage of legacy really needs some though and research to find exactly how to proceed.

I encourage You to research Family Endowment Funding. Many interesting and time frames and how you can change as time goes on with Endowment Funding.

I wish You well in your decision of your Legacy.

 

[marko]

But there are downsides. It is much more complicated, and are you creating "trust fund kids" who lack motivation and may thus stray into unproductive pastimes.

My experience with trust fund kiddies is that the money (like alcohol) just amplifies the personality.

Half my high school class had mailbox money coming at some point. Most went on to become steady, productive people: lawyers, doctors, running a Save the Whales foundation.

Others died early, or should have due to what we now call "poor life choices". I've seen the difference even between siblings who had the same upbringing.

It's a crap shoot but not a good enough reason to not consider your plan. It's mostly up to the parents to instill a sense of responsibility and expectations early in life but even then you never know.

 

[Mulligan]

I get that and it has been my strategy to date. Might be the best one.

AI would tend to agree with your thoughts. A lot of interesting articles on the net about generational wealth not lasting as long as one would hope…..The "three-generation rule" or "shirtsleeves to shirtsleeves" is the idea that wealth built by the first generation (builder) is often lost by the third (spender) due to lack of financial education, poor planning, and entitlement, with studies suggesting 70% lost by generation two and 90% by generation three, though this is not inevitable and can be countered with education, communication, and strong financial/estate planning to build generational wealth.

 

[OldShooter]

As a partial solution, we have put our lake home (~1.2M$ on 6 acres) into a trust where the three trustees are blood relatives of mine. The role of the trustees is to manage the home for equitable use by our blood descendants and their families. Each trustee is required to name a successor trustee from the same bloodline and there are fairly permissive rules on what the trustees can do with the asset. To reduce greed and financial pressure for maintenance, the trustees may sell the asset but in that case the proceeds go to the local community foundation. Hence the trustees cannot use their roles to enrich themselves. The structure and governance of the trust will, in theory, be maintained in perpetuity though we fully realize that can only be a dream.

 

[marko]

AI would tend to agree with your thoughts. A lot of interesting articles on the net about generational wealth not lasting as long as one would hope…..The "three-generation rule" or "shirtsleeves to shirtsleeves" is the idea that wealth built by the first generation (builder) is often lost by the third (spender) due to lack of financial education, poor planning, and entitlement, with studies suggesting 70% lost by generation two and 90% by generation three, though this is not inevitable and can be countered with education, communication, and strong financial/estate planning to build generational wealth.

Yes. The generational wealth world is generally different from the 9 to 5 crowd.

Children are best served by being slowly brought into an awareness of wealth and its pluses and minuses and the dangers, opportunities and responsibilities.

As noted, there's never a guarantee but thoughtful parenting can minimize the negative outcomes as well as avoiding the dreaded "third generation curse". Things seem to settle down by the fourth generation and beyond as it becomes more of a way of life than some novelty.

 

[Sunset]

We provided our millennial DD (married with one child) with a large gift (not enough to FIRE) that was about 1/2 of what we would have left her had we left earth last year. We decided to do this because DD and DSIL are both public school teachers and houses here in SE VA seem to be pushing $500K+ (we're talking your basic new 3 bdrm, nothing fancy). This enabled them to buy a new house with enough of a down payment so their mortgage is approx what their rent would be, and now with a new house, new car, some money in the bank, they're in a good place to save during a decent market and not have to ask for anything, except babysitting, which is why we moved down here. After a year, I don't miss the money that I did not need, and we get to watch it being used.

Wondering how you protected this gift from the 50% dilution of the gift by divorce which is a real possibility given about 50% of marriages end in divorce ?

 

[Sunset]

As a partial solution, we have put our lake home (~1.2M$ on 6 acres) into a trust where the three trustees are blood relatives of mine. The role of the trustees is to manage the home for equitable use by our blood descendants and their families. Each trustee is required to name a successor trustee from the same bloodline and there are fairly permissive rules on what the trustees can do with the asset. To reduce greed and financial pressure for maintenance, the trustees may sell the asset but in that case the proceeds go to the local community foundation. Hence the trustees cannot use their roles to enrich themselves. The structure and governance of the trust will, in theory, be maintained in perpetuity though we fully realize that can only be a dream.

Wonder if it will work ?

I've seen a family bloodline narrow from the parents of 3 children to now 1 grandchild. But maybe your trust is fine with very distantly related relatives.

Are you literal when stating bloodline ? What if a relative adopts a child ? , they don't qualify ?

 

[Koolau]

The "three-generation rule" or "shirtsleeves to shirtsleeves" is the idea that wealth built by the first generation (builder) is often lost by the third (spender) due to lack of financial education, poor planning, and entitlement, with studies suggesting 70% lost by generation two and 90% by generation three, though this is not inevitable and can be countered with education, communication, and strong financial/estate planning to build generational wealth.

We are running the experiment. My parents started with nothing. Less than nothing, really. Together they built a small family business. DW and I bought the business from them and we built it up from there. Now we have sold to the third generation. I say "sold", but it was more like "gave" with just a bit of skin in the game. I'm not sure we'll be around long enough to see what happens, but I'll be watching as long as I can.

The one thing that has been the most striking about the whole "generational" thing: 3 generations happen very quickly. The third generation is already in their 40s and (wait for it) is already talking about early retirement!

 

[lawman]

We are meeting with a lawyer next week to begin setting up a trust. We only have one child and 2 grandchildren..We want to leave some to each and want to avoid probate so that house can be sold soon after the death of both me and my wife. Me and my wife will be trustees and our only child will be both beneficiary and trustee once we are deceased... Two questions:

1.Pros and cons of transferriing I-Bonds to the trust?
2. Grandchildren will not receive theirs before the age of 25..What is to keep our only child who will be both beneficiary and trustee from taking it all before the grandchildren reach age 25?

 

[OldShooter]

Wonder if it will work ?

So do we!

I've seen a family bloodline narrow from the parents of 3 children to now 1 grandchild. But maybe your trust is fine with very distantly related relatives.

That's a risk, I guess, but there are several nephews and nieces and all but one couple have at least a couple of kids.

Are you literal when stating bloodline ? What if a relative adopts a child ? , they don't qualify ?

Nope, they don’t qualify to become a trustee, but the trustees could choose to treat them the same as the other stakeholders in terms of access to the home, etc. No trust IMO can anticipate and deal with all possible future events. This is an event we didn't consider when we were designing the thing. FWIW the trust document is already 38 pages.

 

[OldShooter]

2. Grandchildren will not receive theirs before the age of 25..What is to keep our only child who will be both beneficiary and trustee from taking it all before the grandchildren reach age 25?

a) It would be fraud. The issue may end up being that the grands may not be told about the trust. That makes malfeasance more attractive. Consider naming a professional co-trustee. In general, naming a relative as trustee if that relative has discretion over $ payments to other relatives may not be your best idea. Lots of potential for bad feelings and litigation.

b) Solely setting a specific age may not be a good idea. What if the beneficiary dies before reaching 25? What if a beneficiary has a need for money, for example home care for a fatal disease, but the trustee has no legal ability to disburse. Your experienced trusts & estates attorney will have experience dealing with these kinds of things.

You are going to get professional help with this, right?

 

[rk911]

No heirs, but we still have a desire to use our wealth to help others so we created two scholarships. They likely will live in perpetuity.

We're thinking of doing that also. How did you go about doing that?

 

[lawman]

a) It would be fraud. The issue may end up being that the grands may not be told about the trust. That makes malfeasance more attractive. Consider naming a professional co-trustee. In general, naming a relative as trustee if that relative has discretion over $ payments to other relatives may not be your best idea. Lots of potential for bad feelings and litigation.

b) Solely setting a specific age may not be a good idea. What if the beneficiary dies before reaching 25? What if a beneficiary has a need for money, for example home care for a fatal disease, but the trustee has no legal ability to disburse. Your experienced trusts & estates attorney will have experience dealing with these kinds of things.

You are going to get professional help with this, right?

Excellent! Things I had not even considered..We are using Thomas-Walters..Estate plans is all they do..THANKS!