Did you know that 70% of families lose their wealth by the second generation? You read that correctly. Seven out of every 10 families that pass along generational wealth lose their family fortune just one generation after establishing it. By the third generation, 90% of families have lost their generational wealth.
Building generational wealth is one thing. It requires a single hard-working, resourceful individual to build assets that will establish financial independence for themselves and their dependents.
Maintaining generational wealth is another thing entirely. It requires establishing systems to preserve and protect wealth, as well as training successive generations on how to manage wealth responsibly.
This article will focus on how to maintain generational wealth. Whether you’re a first-generation investor who wants to make sure your wealth lasts beyond your grandchildren or a recipient of generational wealth who wants to be a good steward of the family fortune, this article will teach you how to manage your finances for the benefit of yourself and future generations.
Actionable Ways to Maintain Generational Wealth
Here is a list of five concrete actions you can take to preserve your generational wealth for your children, grandchildren, and beyond.
1. Explain Financial Literacy and Family Values
Two common causes of wealth erosion in successive generations are 1) a lack of financial education that leads to poor financial decisions and 2) a sense of entitlement that leads to recklessness.
If you plan to pass along money and other assets, it’s crucial for your children and grandchildren to understand the value of a dollar and how to handle money on their own.
Encourage open conversations about money, budgeting, investing, and taxes from an early age. Invite your kids (whether they’re still children or grown adults) to participate in annual family wealth meetings in which you discuss investment opportunities, tax liabilities, and cash flows. Teaching the kids how financial decisions are made and getting them involved in the process can help them feel a sense of stewardship over the family portfolio.
It’s also important to tie the financial legacy to family values and goals, as opposed to simple accumulation. Wealth tends to last when it’s tied to a shared purpose and identity rather than entitlement. You can show these values by funding scholarships, supporting family entrepreneurship, or investing in socially responsible projects.
2. Protect Assets with Appropriate Structures
Wills, trusts, and estate plans are essential tools for families with any assets. But they’re especially important for those who are conscientious about generational wealth. These documents establish how your assets are to be divided upon your death.
Have these documents drafted by an estate attorney to ensure that they are legally enforceable in your state. And review them regularly so you and adjust as needed based on changes in asset values, family dynamics, and financial regulations.
In addition to these basics, you may also want to establish legal trusts, partnerships, or LLCs, depending on your assets and your family’s goals. Note: This is a high-level overview, but it’s always a good idea to discuss your options with a certified financial planner (CFP).
Limited Liability Companies (LLCs)
LLCs are a flexible way to protect personal assets from business liabilities. Real estate investors, in particular, use LLCs to separate individual holdings, reducing risk exposure and simplifying accounting. For families with multiple properties or ventures, an LLC structure also supports organized succession planning and clean asset division.
Family Limited Partnerships (FLPs)
An FLP enables families to consolidate and manage investments or business assets under one entity while maintaining centralized control. Senior family members typically serve as general partners, while younger generations hold limited partnership interests. This structure allows for gradual, tax-efficient transfers of ownership and helps shield assets from personal creditors or divorce settlements.
Living Trusts
A living trust allows your assets to transfer directly to your beneficiaries without going through probate. This saves time and avoids public court proceedings. It also provides privacy, continuity of asset management, and flexibility, which is particularly useful for families with multiple properties or investments that need ongoing oversight.
Dynasty Trusts
Unlike a living trust, a dynasty trust is irrevocable, designed to preserve wealth across several generations while minimizing tax burdens. Because assets within the trust can remain protected for decades (or even centuries, in some states), this structure helps prevent repeated taxation every time wealth is passed down, allowing family capital to grow over time. You give up some control in exchange for long-term tax advantages.
Generational Trusts and Endowments
Generational trusts and family endowments ensure that inherited wealth is used responsibly and according to long-term goals. They allow families to define clear terms for distributions (education, entrepreneurship, philanthropy, etc.), ensuring that wealth continues to serve a meaningful purpose over time.
An Umbrella Insurance Policy
In addition to the holding entities discussed, you may want to consider an umbrella insurance policy to provide an extra layer of liability coverage beyond standard home, auto, or property insurance. They can protect against lawsuits or major claims that exceed underlying policy limits. This is essential for high-net-worth families, including those with multiple assets in a real estate portfolio.
3. Avoid Unnecessarily High Tax Burdens
Strategic tax planning can significantly extend the life of your assets by minimizing avoidable losses.
It’s important to discuss your financial situation with a qualified tax professional to determine which tax planning strategies make sense for you and your family. And to ensure that your family is tax compliant. But here are some general ideas for reducing your tax burden, both as an investor and during the transition of assets:
- Leverage tax-advantaged retirement accounts, such as IRAs or 401(k)s. These accounts allow investments to grow either tax-deferred or tax-free, depending on the account type.
- Invest in real estate for additional tax advantages. Real estate investors can reduce taxable income through deductions (including structural depreciation), benefit from lower long-term capital gains rates, and even use 1031 exchanges to defer capital gains taxes when reinvesting proceeds into similar properties.
- Be mindful of estate tax thresholds. Estate taxes can substantially impact the transfer of wealth to future generations. Working with an experienced estate attorney or tax strategist can help identify legal ways to minimize estate taxes through trusts, gifting strategies, or charitable contributions. These measures not only protect assets but also align transfers with long-term family objectives.
4. Manage Inflation
Economic inflation presents a quieter but equally powerful threat to generational wealth. Over time, purchasing power erodes if assets are held primarily in cash or low-yield/low-risk accounts. This is the big danger of saving rather than investing.
This is another reason real estate is well-suited to generational investing. Real estate tends to perform well during periods of inflation, appreciating in value and commanding higher rental rates.
Maintaining a diversified portfolio that includes inflation-friendly assets, such as real estate, mortgage-backed securities (MBSs), or commodities, can help preserve real value despite inflation.
5. Allow Each Generation to Evolve
Family wealth strategies must adapt to changing laws, markets, and lifestyles. Younger generations should feel empowered to invest inherited money in emerging markets that previous generations simply didn’t have access to.
Take real estate crowdfunding and syndication, for example. Prior to the JOBS Act of 2012, sponsors were not permitted to offer shared-equity real estate deals to the general public. Investors who wanted to pool funds with other investors to access unique deals needed to be well-connected and invest a substantial portion of the project’s required capital into the deal through private equity.
But today, accredited investors can pool funds, investing in pre-vetted deals, professionally managed by a real estate sponsor. This generation of investors has the power to earn double-digit average annualized returns through real estate syndication.
As long as the next generation has been taught financial literacy and family values, they can maintain the core principles of sound investing while evolving their tactics to leverage advancements in tech and alternative assets.
Invest in Real Estate Syndication for Generational Wealth Maintenance
If you’re looking for a passive investment vehicle with strong return potential, tax benefits, and a hedge against inflation, consider investing in real estate syndication with Gatsby Investment.
Gatsby specializes in multi-family development in the high-demand Los Angeles housing market. This innovative niche has created a 100% profitable track record with average annualized returns of 22.3% for investors!
Whether you’re looking to establish the first generation of wealth in your family or protect and grow the wealth previous generations have blessed you with, Gatsby’s pre-vetted real estate investment opportunities are a well-tested strategy that’s easy to implement!