5 Investment Strategies To Secure Generational Wealth For Your Children

Cheerful senior woman embracing her mid adult son who came to visit her at home.
Drazen Zigic / Getty Images/iStockphoto

According to estimates by financial market intelligence firm Cerulli and Associates, $84.4 trillion in multigenerational wealth transfer is set to occur between 2022 and 2045, with $11.9 trillion to be donated to charities and $72.6 trillion in assets passed on to family and heirs.

While often associated with high- and ultra-high-net-worth individuals, transferring family assets from one generation to the next is something that will affect a great majority of Americans, regardless of income or existing assets.

Securing generational wealth for your children involves careful planning, wise investment decisions and a long-term perspective. Here are five ways to start preparing to leave a legacy of wealth behind for your children and grandchildren.

1. Develop Multiple Revenue Streams

Employment income is a valuable money source, but you may need to develop multiple revenue streams to create generational wealth. Whether you own a globally diversified portfolio of dividend-yielded stocks or invest in real estate or venture capital that has the potential to produce massive future cash flow, the goal is to generate as much passive income as possible to pass down to your family. By leveraging financial capital into income-generating investments that don’t require much active labor, your net worth continues to grow long after you retire.

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2. Create a Trust or Family Investment Fund

One of the most practical steps you can take to protect generational wealth is to set up a trust fund. By establishing a trust or a family investment fund to manage and protect family wealth, you can specify guidelines for the fund’s use, distribution and reinvestment to ensure its long-term sustainability and benefit for future generations.

This powerful estate planning tool allows you to have more control over how your wealth is passed on, and permits you to avoid probate and certain taxes. This means that you get to decide on what terms your children will be receiving their inheritances and that their inheritance will be better sheltered from legal fees and certain taxes that can affect your inheritance. You can always add to the trust fund as time goes on, and the trust itself can be used to grow your wealth through investment.

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3. Invest in Real Estate Syndications

Writing for Forbes, Feras Moussa, co-founder and managing partner of Disrupt Equity, said that although real estate is a common way to build generational wealth, people should look beyond buying and renting out single-family homes. Investing as a limited partner in real estate syndications, which deal in commercial and apartments or multifamily buildings, can pay off substantially and quickly.

“While all investments have the risk of loss, syndications tend to be a popular choice as they can provide substantial returns quickly,” said Moussa. “For example, a syndication might offer 8% returns for five years and a 50% increase on your initial capital investment at the end of the term. A hypothetical investment in a syndication with those terms would nearly double its money in five years.”

4. Make Financial Gifts

As Clever Girl Finance noted, giving to your children or family members for a down payment on a house or future wedding, for instance, is a great way to pass on your inheritance. Families can give up to $17,000 per person, or $34,000 per couple, without having to pay federal gift taxes in 2023. For example, if you and your spouse have two children, that means you could give the kids up to $64,000 this year and keep doing so every year without getting a tax bill from the IRS.

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5. Educate Your Children About Money

It’s important to provide financial education to your children to equip them with knowledge and skills necessary to manage and grow the wealth you’ve accumulated. Teaching them about investing, budgeting, saving and making informed financial decisions at an early age will instill good values and principles in your children. As Ramsey Solutions noted, “You can teach them by talking about money in everyday conversations, sharing where you’ve messed up, and modeling wise behavior with money.”

The best way to build generational wealth for your family is to get started as soon as you can. Wealth compounds over time, allowing your investments to grow over time. The earlier you can get started, the more time will have to potentially build a significant amount of wealth for your children.

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