Multigenerational wealth is a popular buzzword today. You hear about passing assets and money down to your future generations with tools like trusts, living wills, IRAs, and more all over YouTube, the internet, and even the radio.

Of course, most buzzwords tend to be short-lived trends that sweep people by storm for a short time. But building multigenerational wealth is a long-standing, vitally important legal and financial concept that can help you create a legacy and provide for and protect your family for generations to come.

So what exactly is multigenerational wealth, and why is it so important? 

What is multigenerational wealth? 

Multigenerational wealth means accumulating assets and resources that you can pass down to your children, grandchildren, great-grandchildren (and so on), then strategically preserving and protecting those assets so they can benefit.

Multigenerational wealth is more than bank accounts, though. It’s a way to impart values, financial literacy, and a sense of responsibility to future generations. For example, you can hold family meetings to involve your children and grandchildren in the wealth-building process and educate them on the importance of saving, investing, and managing assets wisely. That way, they’ll have the knowledge and skills they need to keep growing that wealth and continuing a lasting legacy.

The importance of multigenerational wealth 

Multigenerational wealth offers significant benefits for you and your heirs, including:

• Financial security so your heirs won’t have to start from scratch with common financial challenges like college or first home down payments
• Reduced financial stress from financial burdens like debts, high taxes, or crippling unexpected expenses
• Access to educational opportunities such as private schooling or Ivy League colleges
• The chance to teach future generations the ropes of smart investing, saving, and responsible spending to preserve wealth

Challenges encountered when building multigenerational wealth

Building multigenerational wealth sounds amazing, doesn’t it? After all, who wouldn’t want to secure their family’s future for generations? But like most good things, building multigenerational wealth comes with its own set of challenges.  

Complex tax laws

Issues such as estate taxes, capital gains taxes, and gift taxes can take a huge chunk of your wealth if not managed properly. Many families struggle to understand and implement tax-efficient strategies, which can lead to unnecessary financial loss and complications during asset transfer.

Dealing with probate

During the probate process, your last will and testament is presented to the court. If you don’t have a clear plan for distributing your estate, as well as an appointed executor, probate can become a time-consuming and costly process that delays the distribution of your assets to your heirs. It’s also public, so your financial matters become part of the public record.

Multigenerational wealth or not, many families aren’t prepared for this process and don’t know how to avoid it, causing a large portion of their estate to be depleted by court costs and legal fees.

Protecting assets from creditors

Protecting accumulated wealth from potential creditors after you pass is another common hurdle many families face. Without the right legal structures—such as series limited liability companies (LLCs), Family Limited Partnerships (FLPs), and asset protection trusts—your assets can be vulnerable to:

• Claims from creditors
• Lawsuits
• Divorce settlements
• Medical payments, including Medicaid
• High nursing home costs

Tips on how to build multigenerational wealth 

Building multigenerational wealth can be challenging, but it’s not impossible. With a thoughtful approach, strategic planning, and the help of the right legal and financial professionals, you can overcome these obstacles and set your family up for lasting success. Here’s how:

Establish trusts

Trusts can be one of the most effective ways to protect and manage your assets for future generations. Trusts provide clear instructions on how and when your assets should be distributed, which can help avoid fights among heirs and ensure your wealth gets used according to your wishes.

There are different types of trusts, such as revocable and irrevocable trusts. A revocable trust lets you retain control over your assets during your lifetime, while an irrevocable trust can protect your wealth from creditors and provide greater tax benefits.

To set up a trust, you’ll need to work with an experienced estate planning attorney who can help you choose the right type and structure it properly. By doing so, you secure your wealth from legal challenges, minimize the impacts of the probate process, and help your heirs maintain and grow your wealth through a structured financial roadmap.

Sometimes we set up a dynasty trust funded with cash and securities, with the purpose of creating sub trusts and buying life insurance for each new family member in each generation. It creates a spider web of trusts with cash value life insurance policies.

Consider Irrevocable Life Insurance Trusts (ILITs) 

An Irrevocable Life Insurance Trust (ILIT) is a type of trust specifically designed to hold and manage life insurance policies. Once the trust is established and the policies are transferred into the trust, the terms can’t be altered, amended, or revoked.  An ILIT helps ensure that the life insurance proceeds aren’t included in the grantor’s taxable estate. There are a range of benefits to this strategy, including:  

• Reducing estate taxes
• Providing asset protection for beneficiaries
• Allowing controlled distribution of funds
• Leveraging the annual gift tax exclusion to fund the trust
• Supporting special needs planning

ILITs can also be useful in business succession planning and provide flexibility for future tax law changes.

Putting an ILIT into place can be complex; if it’s not handled correctly, it can create delays and frustrations later down the road. To avoid issues, make sure you:

• Work with experienced professionals to structure and fund the trust
• Choose a reliable trustee
• Regularly review and update the trust strategy to align with family needs and tax laws

Create a comprehensive estate plan

A comprehensive estate plan is essential for building and preserving multigenerational wealth. It encompasses a variety of legal documents and strategies, including:

• A last will and testament
• Powers of attorney
• Healthcare directives
• Beneficiary designations
• Letter of intent
• Financial inventory

These elements work together to carry out your wishes and protect your assets, regardless of what happens. 

To create a robust estate plan, consult with an experienced estate planning attorney who can guide you through every step of the process and tailor the plan to your specific needs. They’ll also review and update your plan regularly to reflect any changes in local or federal laws and your life, such as the birth of a child, changes in marital status, or significant financial shifts.

Leverage tax-efficient strategies

Tax efficiency is a pillar of multigenerational wealth building. After all, the less you pay in taxes, the more you can preserve and grow your wealth. Thankfully, there are several legal strategies to minimize taxes, such as:

• Gifting
• Charitable donations
• Tax-advantaged accounts like 401(k)s and IRAs
• Establishing FLPs, LLCs, or C-Corporations

These strategies reduce your current tax burden and future tax penalties for your heirs.

Partner with legal and financial professionals

As you can see, building and maintaining multigenerational wealth is a complex task that requires professional guidance. Partnering with experienced legal and financial professionals can provide the expertise and support needed to manage all the moving pieces successfully.

A wealth management and estate planning attorney can help you create a comprehensive, tailored estate plan that addresses all legal aspects of wealth transfer and protection. Financial advisors can offer strategic investment advice, tax planning, and overall financial management. Together, they can create a cohesive strategy that aligns with your goals, manages every aspect of your wealth effectively, and ensures your future wishes get carried out to the letter.

Start multigenerational wealth planning today

Planning for multigenerational wealth might seem daunting, but this investment in your family’s future pays dividends for generations to come. By taking the right steps today, you can ensure your hard-earned assets support your loved ones and continue to grow and benefit future generations.

At The Law Offices of Shann M. Chaudhry, ESQ., our experienced multigenerational wealth management and estate planning attorneys understand the intricacies of estate planning and managing wealth and assets. We’re dedicated to helping you craft a comprehensive and tailored plan so your wealth can be passed down to your heirs.

Contact us to learn more and schedule a consultation to see how we can help you build a legacy of multigenerational wealth that stands the test of time.