Generational Wealth: No Matter Your Age, Expert Says Building a Blueprint Is Possible
Written by
Yaël Bizouati-Kennedy
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Building generational wealth might seem out of reach for many Americans, especially younger generations. Planning an inheritance for your family involves significant consideration in estate planning, risk protection and insurance. Yet, some experts argue that no matter your age and financial starting point, you can build a blueprint to create generational wealth.
“In simplest terms, generational wealth is passing assets down from one generation in a family to the next,” said Paul LaPiana, CFP, head of product, brand and affiliated distribution with MassMutual. “It gives the next generation a solid financial foundation, providing options and opportunities that otherwise may not be as easily accessible.”
To put wealth transfer in context, as a New York Times report noted, of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, a whopping $16 trillion will be transferred within the next decade.
According to LaPiana, there are several key items to ensure that your family is adequately protected and that you will not be impoverished in the event of an unexpected sickness, disability or death.
Add Life Insurance and Disability Income Protection
These are crucial to ensure that your family will be protected. In addition to a basic term policy, a quality cash value life insurance contract will provide you and your family with enhanced financial opportunities and protections, said LaPiana.
“Life insurance cash values can be accessed on a tax-deferred basis to help meet family financial emergencies, supplement future retirement income, help pay for college tuition or simply provide cash to meet an investment opportunity or even to help purchase a vacation home,” he added.
He also noted that by adding a waiver of premium to a policy, you have a built-in disability benefit; policy premiums are waived during a qualifying disability.
“Policies can be designed to provide future long-term care benefits, or chronic care or catastrophic illness coverage. Being adequately insured is truly the backbone of a family financial plan,” he said.
Purchase Whole Life Insurance
As LaPiana explained, securing (whole) life insurance for children or grandchildren when they are young provides them with security and options throughout their lives.
“Policy cash values can build up over decades and will be available to the children and grandchildren to supplement their retirement income, or to provide cash values for family needs,” he said, adding that death benefits will be available to provide for their families, therefore creating a financial safety net for future generations.
Set Up Trusts
These can play a critical role in protecting the ability to build generational wealth. In addition to tax benefits, LaPiana said that trusts can keep assets in a family by providing discretionary distributions to beneficiaries or using trust assets for beneficiaries rather than outright distributions.
“Trust assets can also protect from claims against beneficiaries, including from a beneficiary’s creditors or ex-spouse,” he said. “State laws vary on the protection provided by trusts so working with knowledgeable attorneys and other advisors is important.”
Some Pitfalls to Avoid
As LaPiana explained, building wealth demands that you address the myriad risks that can sabotage value over a long period. For instance, protection from economic downturns, mismanagement, poor allocations, premature death or litigation, distinguishes those who build wealth from those who will not pass wealth on, he said.
“It is the combination of disciplined capital deployment and risk management that allows wealth to grow for decades,” he noted. “If you look behind the curtain in families of generational wealth, you will usually find a cadre of advisors that help guide the family over the long-time horizon and a combination of investments and risk management products that help to realize the family’s very long term vision.”
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