If you already have access to a reasonable volume of assets to pass on, that’s great. Still, you may have to start from scratch, which is also okay. You just have to carefully consider the strategies available to you along with how you can acquire assets responsibly and reasonably and save for the future.
The approach you take with wealth building will largely depend on the ages of the children that you are saving for, your investment timeline, your lifestyle, income, investment style, and way more. Generally speaking, however, there are several foundational strategies that you can put in place now to start growing your family wealth for the future. Utilise an estate planning service to get your finances in order.
1. Build a Nest Egg
Today, the term “nest egg” is used to refer to a sizeable reserve of assets that a person has been saving for a specific reason. The reason could be funding a wedding, paying for a child’s first house, college education, retirement, or anything else. Building a nest egg is all about funding your future, which is why it is a popular option among relatively conservative investors.
The point of a nest egg is securing the future of a family, which means that investing in high-risk assets is definitely out of the question. Building a nest egg should ideally be done using low-risk assets such as real estate, blue-chip stocks, a certificate of deposit or even bonds.
2. Create a Custodial Account
Setting up a custodial account is perhaps one of the easiest ways to build generational wealth. A custodial account is a type of tax beneficial investment vehicle that allows an adult to set up an investment account on behalf of a beneficiary who’s a child.
It is your responsibility as the adult custodian to manage the assets in a custodial account and make investment decisions, but while you might be temporarily in charge, everything in the account legally belongs to the child beneficiary.
A custodial account allows most families to enjoy big tax savings because it means that the unearned income a custodial account generates is taxed by the IRS at the child’s lower rate up to a particular threshold.
The custodianship ends once the child beneficiary reaches the “age of majority” in their state and everything in the account is then transferred over to the child. In most of the states, that age is either 18 or 21.
If this sounds like a path you would like to pursue, you should consider checking out EarlyBird. You can use the EarlyBird app to build generational wealth relatively easily and invest for your children’s future.
You can choose from multiple exchange-traded fund (ETF) portfolios based on the ages of the children you are investing for, your risk appetite, and your investment style. Your relatives, coworkers, neighbors, friends, and anyone else can use the app to give money to the child’s account, helping you build generational wealth faster for the children you love.
3. Create a Trust Fund
Setting up a trust fund is another flexible option when it comes to building generational wealth for future members of the family. Families often use trusts as a way of reducing their tax liabilities.
If you set up a trust fund, you are normally able to protect your estate’s total value by lowering the inheritance tax that beneficiaries will be required to pay once the assets are eventually passed down. Beneficiaries, however, will still be required to pay capital gains tax on profits generated via the trust.
It is also worth noting that, depending on the type of trust that you set up and the rules in your state, you could be relinquishing some control over investments to other third-party trustees before you actually pass generational wealth down the line.
4. Wise Investing
It might sound a bit obvious, but one of the most important things you can do to build generational wealth is simply being smart about how you invest your money.
You can invest your existing wealth in loads of different ways. You may consider real estate investments, online companies, government bonds, company stocks, commodities like gold, mutual funds, ETFs, or anything in between.
But, before you start to invest, you should first take a reasonable amount of time to consider whether the choices that you are making are the right way to go about investing for your children.
Points that you should consider when you select the right investments for building generational wealth include your existing investment portfolio, investment timeline, the number of children that you are saving for along with their ages, the flexibility of any investment vehicles that you are choosing, and the anticipated contribution limits.
For instance, you may consider investing in a 529 plan to build generational wealth that can be used to fund your child’s future education. Still, you should keep in mind that 529 plans have incredibly strict rules on the kind of educational expenses that can be covered by your assets.
If the children that you are saving for decide not to go to college, reinvesting those funds and the tax implications of those transfers can pose quite a problem. Simply put, you need to understand exactly who you are investing for, what you are investing for, and then carefully weigh the pros and cons of every opportunity that’s available to you.
Ways to Pass Down Generational Wealth
Ultimately, how you decide to pass down your generational wealth will depend on the investment vehicles that you have chosen to build your wealth. For instance, you may opt to name beneficiaries in your will that will include the next generation of your family, or pass on your existing accounts or properties.
One of the most hassle-free ways of passing down generational wealth is actually going for an investment vehicle that has a built-in mechanism designed for transferring wealth without you having to do anything.
If you opt for a custodial account, the named beneficiary will automatically inherit the wealth you have accumulated for them once they reach the specified age of majority in their state. It is usually either 18 or 21, but it could be as old as 25 depending on the type of custodial account.
Once the named beneficiary reaches that age, they can take over the management of the assets that you have created for them and transfer it to their preferred account.