What Amount of Money Is Considered Generational Wealth?

Creating Generational Wealth

What amount of money is considered generational wealth?

Once you’ve reached a certain level of success and financial well-being, creating generational wealth may become a priority.

You want to preserve what you’re building and pass it along to those you love. 

If this sounds like you, then keep reading. I’m going to define generational wealth and cover the best investments to create generational wealth. Educating yourself is a powerful tool for creating generational wealth, so you’re already on the right track.

If you just want a quick answer, generational wealth is not defined by an amount. Any amount of money or assets passed from one generation to the next is generational wealth.

Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®

What Amount of Money Is Considered Generational Wealth?

Technically speaking, any inheritance is considered generational wealth because you pass along money to another generation. 

However, when most people consider generational wealth, they think about creating enough wealth to create a solid launching pad for the next generation to pursue their goals and dreams. 

According to the Federal Reserve, “up to one-half of total wealth [is] attributable to intergenerational transfers.” (+) In 2019, the most affluent families were expected to inherit $940,000 or more. It’s safe to say that this dollar amount could be considered “generational wealth.” 

However, the amount of money considered generational wealth is subjective, and there isn’t a “set” number. 

How Generational Wealth Will Benefit Your Family for Many Years

The saying “it takes money to make money” isn’t entirely accurate. 

However, it contains a grain of truth. Generational wealth can benefit families for many years by providing future generations with security rather than fear when making financial decisions. When financial stability is assured, your loved ones can focus on pursuing higher education, impactful careers, and personal passions without worrying about making enough money to pay the bills.

Common Questions about Generational Wealth

What investments are best for creating generational wealth?

While it may be tempting to chase a big win by betting on the next start-up or some new and innovative idea, this approach is often like gambling and carries significant risk. 

The goal should be to establish a foundation of wealth that endures through the generations and fosters stability. The key is to maintain a long-term perspective and stay the course. Many people who build generational wealth create their fortune through a business. 

They create strategies to reinvest the profits from this active venture into separate income streams, such as the stock market and real estate, ensuring their wealth continues growing even as they step back from day-to-day operations. In this way, they build wealth and freedom. 

How can I ensure my kids use the money wisely?

The first step to ensuring your kids use money wisely is to hold regular family meetings where you openly share your values and provide education about financial management. 

If you have a team of experts managing your wealth, consider including your children in some of those meetings to help them build their financial literacy. Additionally, using trusts can be an effective strategy because it allows you to set specific rules for how and when your children can access income and assets. 

Look at the rules for trusts in your country and find out if a trust may be an important part of your estate planning. Always seek the guidance of a qualified estate planning attorney when creating a trust.

How do I protect my wealth from taxes and inflation?

To safeguard your wealth from taxes, you must assemble a team of financial professionals who can guide you in implementing strategies that allow for tax-deferred income. 

Your tax planning strategy may include using retirement accounts or certain investment vehicles to minimize your current tax liability. 

Diversification is key to protecting your wealth against inflation. It is important to invest in interest-generating assets and consider equities in the stock market, which often perform well during inflationary periods. 

Adopting a balanced investment approach can enhance your wealth’s resilience against taxes and inflation.

What are Some Examples of Generational Wealth In Practice?

EXAMPLE 1:

One example of generational wealth in practice is a family that starts a successful manufacturing business.

As the company flourishes, the parents recognize the importance of planning ahead for their family.  They establish a holding company that invests in both the stock market and real estate to make the most of their extra profits. 

This approach allows them to have an active business alongside a passive income stream. With the expertise of a trusted team of lawyers, accountants, and financial advisors, they create a trust managed by professional trustees, naming their children as discretionary beneficiaries. 

This strategy ensures that while the kids don’t receive direct access to funds right away, there’s a structured plan for them to inherit assets now or in the future.

EXAMPLE 2:

Another example involves a family that owns a successful farm passed down through generations. 

The parents implement a plan to ensure future financial stability for their children. The farm generates a stable income. Meanwhile, the parents set up a diversified investment portfolio that includes stocks, bonds, and mutual funds. 

To prepare their children for financial responsibility, the parents involve them in discussions about farm management and investment decisions, even allowing them to manage a small portion of the investment portfolio. They create a family trust, naming their children as beneficiaries securing the family assets while providing guidelines for responsible stewardship. By combining active management of the family farm with strategic investments and education, this family lays a strong foundation for lasting generational wealth.

When you look at these two examples, you can see that families who pass along generational wealth use smart strategies, including estate planning and education. 

Can I build generational wealth with a modest income?

You can build generational wealth with a modest income by being strategic with your finances. 

Start by establishing clear financial goals. Ensure you spend less than you earn. And actively contribute to savings. 

Focus on paying down debt and begin investing responsibly and consistently. 

The earlier you start saving, the more time you have for your investments to grow through the power of compound interest. Remember, while you are earning an active income, it’s crucial to cultivate streams of passive income through smart investments. 

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