How to build generational wealth

Building wealth isn’t just about protecting your own future; you may hope to create a financial legacy that supports your children and grandchildren as well. Generational wealth gives your family a valuable head start, opening doors to opportunities they might not have access to otherwise.

However, building a sustainable financial legacy doesn’t happen by accident. Let’s explore practical ways to build and preserve wealth that you can pass down to the next generations.

What is generational wealth?

Generational wealth consists of assets—including cash, investments, real estate and businesses—that are passed down from one generation to the next. It’s what allows your kids or grandkids to start their adult lives with a financial cushion instead of starting from scratch.

This kind of wealth can fund a college education, the down payment on a home or even a new business venture, making it easier for future generations to build on your success. Ultimately, it’s about creating lasting financial security that outlives you.

Building generational wealth

Building and preserving enough wealth to support yourself and future generations isn't a simple task. It requires a comprehensive, long-term plan for managing and growing your assets.

Here are some key strategies that can help you create a financial legacy that benefits your family for years to come.

Build assets for the long-term.

One of the keys to building a financial legacy is taking advantage of investment opportunities that enable your assets to grow over time and potentially provide an income stream for you and your heirs. These may include:

• Securities, such as stocks and bonds. A diversified portfolio offers the potential for your wealth to grow exponentially over time. Depending on your mix of assets, it can also provide dividend and interest income for you and your family.
• Real estate. Equity in your home can provide a source of wealth for future generations. You may also consider investing in rental properties that can provide an ongoing source of monthly income, as well as key tax benefits.
• Cash-value life insurance. Permanent life policies provide a tax-free death benefit to your heirs and allow you to borrow money for your own financial needs. For some affluent families, a life insurance policy can help your surviving family members cover estate taxes that may be due shortly after your death.
• Business interests. A family business isn’t just a way to generate income today. It can also become a lasting asset for future generations. With the right succession plan in place, you’ll boost the odds that the business continues to grow and succeed long after you’re gone.

Manage risk when building generational wealth.

Protecting your wealth is just as important as building it. Risk management strategies, like asset diversification, can help shield the generational wealth you’re building from unexpected movements in the market. A financial professional can help you allocate your money in a way that balances growth potential with capital preservation. 

Carefully managing your insurance needs is another important way to keep your wealth plan on track, even if life throws you a curveball. In addition to taking out life insurance, consider buying disability coverage to protect your income if an illness or injury prevents you from working.

Create an estate plan focused on generational wealth.

Without a clear plan in place, there's a chance that your intentions won't be realized after you’re gone or that your assets won't be allocated in the way you had hoped.

That's why it's vital to sit down with an estate planning attorney who can help you draft key estate planning documents, such as a will or trust. An estate plan helps ensure your wealth goes where you want it to go, when you want it to get there.

Using tax planning to build generational wealth.

Without a solid strategy in place, taxes can slowly but surely erode the generational wealth that you’re trying to build and pass on. A smart tax strategy helps you keep more of what you earn and transfer it to the next generation efficiently.   

That could mean taking advantage of tax-deferred accounts, setting up trusts or making strategic gifts while you’re still around. A tax specialist – ideally working in sync with your financial professional – can help you navigate complex tax laws so you can minimize liabilities.

Talking about generational wealth

Steadily building assets throughout your lifetime is a vital way to take care of your heirs' financial needs. But if your kids or grandkids don’t understand how to manage money responsibly, there’s a good chance that wealth won’t last beyond the third generation.

That’s why having candid conversations about money – for example, the need for goal-setting and long-term planning – is so important. When you share your aspirations and the financial lessons you've learned over a lifetime with younger generations, they’re more likely to become careful stewards of the wealth you've created. The goal isn’t just to transfer wealth. It’s also to pass on the mindset that created that wealth in the first place.

The importance of a financial plan to generational wealth

Generational wealth doesn’t just happen. It’s the result of a clear, intentional plan. You need to know where you’re going and how you’ll get there. A solid financial plan ties together your investments, insurance, estate plan and tax strategy so everything’s working toward the same goal.

Because of the inherent complexity of establishing a multigenerational financial plan, it’s best to partner with a team of financial, tax and estate planning professionals who can steer you through the process and help ensure that your hard work leads to lasting results.

Learn how U.S. Bank wealth advisors and teams can work with you to manage your wealth today and create a legacy for generations to come.