How to Build Generational Wealth

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The information included here is not intended to provide a comprehensive analysis of the topic discussed. These are general suggestions that may or may not apply. Everyone has distinct circumstances and requirements. As such, there is no guarantee that the suggestions referenced here will be helpful or applicable. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors.  Before making any decision or taking any action, you should consult with a professional tax and legal advisor who has been provided with all pertinent facts relevant to your situation. Hiring a qualified advisor or diversifying your portfolio does not guarantee investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. All investment strategies have the potential for profit or loss.

EP Wealth Advisors, LLC ("EPWA") makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented in this report. EPWA has used its best efforts to verify the data included. The information presented was obtained from sources deemed to be reliable and deemed to be accurate as of the date of delivery. However, EPWA cannot guarantee the accuracy or completeness of the information offered. The content of this report is subject to change often and without notice.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio.

You’ve worked hard your entire life. Now, you not only want to enjoy the rest of your career and a fulfilling retirement, but also take care of your children (and their children too). This means you’re interested in creating and maintaining generational wealth, or assets that pass down from one generation to the next.

You don’t have to wait until you pass away to set up your descendants for success. Taking a proactive approach to estate planning sooner rather than later enables you to implement wealth-building strategies that allow you to bequeath or transfer assets to your heirs. 

When it comes to handing down your wealth and assets, there are many factors to consider, including trusts, annual gift exclusions, unified exemption amounts, and individual retirement account (IRA) beneficiary designations, to name a few. You might also want to explore electing a trust as a beneficiary instead of an individual.

Building and maintaining wealth is no easy feat, particularly in today’s challenging economic climate. A financial advisor can help you develop a plan that meets your needs. With the right partners, organized estate planning documents, and collaboration between your investment, tax, and legal professionals, building wealth becomes easier for everyone involved.

Keep reading to learn how to build generational wealth and the critical role a wealth management consultant can play in the process.


How to Build Generational Wealth

Building generational wealth isn't just about you. Although you will have to make many financial decisions and be smart about your money, you will also need to educate your family to help them develop stronger financial skills and establish a successful future on their own.

As you begin building a plan, here are some considerations you will need to keep top of mind:


1. Get a financial education.

Building generational wealth starts with financial education. As you begin developing a plan to grow your wealth and protect your assets, here are some of the factors you will need to consider:


          • Taxes: The amount you leave behind will be affected by the amount you pay the government. You need to pay your tax obligations, but the key is keeping those obligations as small as legally possible. Because the tax code is complicated and changes regularly, talking to a financial advisor or a tax professional can be particularly helpful.


          • Gifts: One way to pass assets to your family is by gifting them money regularly. That said, you can’t just write blank checks. In 2023, the annual gift exclusion is $17,000. If you gift more than that to an individual, you may have to pay gift taxes. Additionally, the IRS allows a lifetime exclusion of $12.92 million.

          • Trusts: If you’re in the position to do so, you may want to establish tax-advantaged trusts that enable you to pass more of your wealth to your descendants. Because trusts are a complicated financial vehicle, it helps to have a financial advisor explore your options and guide you through the process.


          • Retirement plan beneficiary designations: You will need to determine the beneficiary of your retirement accounts. Whether that’s your children or a trust is up to you. Whatever you decide, it’s important to ensure that your designations are up to date and that you understand the tax consequences your heirs will face when they inherit your assets. For example, the IRS recently ditched its 10-year rule. Now, those who inherit certain IRAs have to take required minimum distributions immediately and incur the associated tax obligations.


Financial education doesn’t just apply to you. If you want to set your family up for success, you need to make sure they’re educated on financial topics. Of course, talking with your family about money and finances isn’t always easy. If you’re looking for advice on how to approach this sensitive topic, check out this webinar from the EP Wealth Advisors team.


2. Support formal education.

Passing on generational wealth isn’t just about giving your money to your heirs. It’s about putting them in a position where they can earn on their own. To this end, it’s critical to support their education and encourage them to attend college or university. If you have young kids, you may consider looking into a 529 account to cover education expenses.


3. Pay off your debt.

Your financial goals will be much harder to achieve if you’re sitting on a mountain of debt. To ensure your family is on solid financial ground after you’re gone, pay off as much debt as you can as soon as possible. Start with high-interest debt, like credit card debt, and work your way down.


4. Invest and diversify.

Building your wealth over time starts with making smart investments. As you begin planning for your financial future, invest in many different assets to diversify your portfolio. Some investments to consider include:

          • Real estate
          • High-yield savings accounts
          • Real estate investment trusts (REITs)
          • 401ks
          • Equities 
          • Dividend stocks
          • Mutual funds
          • Index funds
          • ETFs
          • Cryptocurrency
          • Bonds (particularly Series I Savings Bonds, which are good during inflationary periods)


5. Create a small business.

One great way to pass down wealth to your offspring is by starting a small business, growing it, and leaving it in the hands of the next generation. In addition to passing along a business to your kids, being a small business owner also gives you access to additional tax-advantaged investment accounts (e.g., solo 401ks and SEP IRAs) that have considerably higher contribution margins than traditional retirement accounts.


6. Get life insurance.

Although life insurance might not be the most exciting piece of the financial puzzle, it’s an incredibly important one. After all, if you die unexpectedly, what will your family do? With a solid life insurance policy in place, you can ensure your loved ones are taken care of if something happens to you.


Ready to Secure Your Family's Financial Future?

Although building generational wealth isn’t a walk in the park, it is possible. You just need a plan and the determination to stick with it.

With so many moving parts to consider, this isn’t something that you should do on your own. By joining forces with a wealth management consultant and working together to build a plan that helps you meet your needs, you can rest comfortably knowing that your financial future is in good hands and that your children will be taken care of when you’re no longer there.

When you’re ready to begin securing your family’s financial future, contact an EP Wealth advisor.



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