Wealth – people spend a lot of time working towards it, building it, thinking about it. Everyone wants it, but what does it mean? While there are all kinds of ways you could define what being wealthy means for you, and different ways to classify economic strata, in this article we are going to look at one part of the financial management and estate planning world: dynastic wealth.
What is dynastic wealth?
Dynastic wealth consists of assets that are passed down within a family. This level of wealth often travels through several generations and can grow with each generation that receives it.
Sound fancy? Only for the super-rich, the one percent, the old money crowd? Well, it can be, and is certainly found in those circles. But you don’t have to be in the billionaire class to establish and build up generational wealth for your family. At its core, dynastic wealth is any asset that is passed on to a beneficiary. These assets can include:
Stocks, bonds, and other investments
Business holdings or interests
And anything else that will enrich the next generation set to inherit it.
How does dynastic wealth work?
Whether you are the first in your family history to establish significant financial security or you’re looking for a way to best manage what your parents or grandparents have left you, using some of the key strategies of Dynastic Wealth management can help you. That means looking at how you’ll want dynastic wealth to work for you and your family:
Keep the wealth growing
Generational wealth, as its name suggests, is about more than one generation of a family. If you have a lot of money in your lifetime but spend it all before you die, you’ll have been wealthy but those further down the line in your family will not directly benefit from it. We’ve all heard stories of newly rich lottery winners or celebrities who burn through massive sums of money. In managing generational wealth, you seek to avoid this sort of thing. Instead, you want to keep a hold on your wealth and – accounting for inflation and other factors – keep it growing.
Principal vs. income
In brief, principal is the initial amount of money that is received in a trust and income is the interest and any other money generated by it. If the principal is depleted, there won’t be any more interest or income to derive from it.
Keeping wealth in the family
Unlike gifts to other parties, charitable donations, endowments to foundations and other ways of spreading wealth around, generational wealth is the amount of money, real estate, and other valuable assets that remain in the family.
How to protect dynastic wealth
Protecting dynastic wealth means keeping it growing – or at least not shrinking significantly – and available for use through multiple generations of a family line. In other words, it can mean taking what your parents left you and managing it so that you will leave assets to your children and their children. It can be deciding how you want to pass on the things you’ve worked for in your lifetime. Or it can mean restructuring the long-standing wealth management system you’ve had in place.
The terms and details of your finances and how you choose to handle them will be specific to your situation and the assets involved. But, most likely, protecting generational wealth will involve at least some of the following:
Deciding what and when to give
When do you want your family members to come into some or all your wealth? Will they be managing it for themselves at a certain age? Will assets be gifted, placed into a trust, or inherited? Distributing assets doesn’t always have to wait until after a death. Gifts can be given to family members or other Giftees while the Grantor is alive, and Trusts can be established at any time.
Setting up Trusts
If you’re dealing with real estate or a large amount of money, you may want to put at least some of these assets into trust for your heirs. There are different types of trusts for different needs, and the type of trust you create will depend on your particular assets. Trusts can be created to manage gifted assets and inheritance, and may be used to:
transfer real estate, either while the initial owner is alive or after their death
purchase real estate
protect an inheritance from creditors
protect funds from a spouse (in the case of a divorce)
avoid some taxes
pay for medical and educational needs
limit a Trustee’s spending
When you create a Trust to manage inheritance and family money, you – as the Trustor – will need to appoint a Trustee and a Beneficiary (or multiple Trustees and Beneficiaries.) The Trustee and Beneficiary may be the same person, or they may be separate people. The Beneficiary is the person who receives the assets in the trust, and the Trustee is the person who manages the assets.
Estate Planning Consultation
When dealing with large amounts of money, real estate, and other titled valuables, there may be laws, taxes, and other rules that should be taken into consideration. These laws may be State-Specific or Federal, and can depend on where you and your family members live, the ages of the Beneficiaries, and the type of assets in question. Speaking with an Estate Planning attorney and estate planning and wealth management professionals can be a good idea.
Wealth in a Trust vs. a Will
Generational wealth can be, and often is, distributed to younger generations via trusts. Creating a Trust or several may be the solution to managing wealth among your family members. Comprehensive Estate Planning, however, will include a Will as well. In your Will, you’ll appoint the person or persons you trust to make important medical and financial decisions for you if you are unable to do so yourself and cover the distribution of any assets that are not transferred through Trusts. Check out our guide about the difference between a Trust and a Will here.
You may give a lot of thought to your wealth during your lifetime, but what will happen to it after that? Setting up an Estate Plan now is the best thing you can do to see that your family’s wealth is managed correctly after you’re gone. At Trust & Will, we make Estate Planning simple with our online services and State-Specific, customized documents. Contact us today to get your Estate Planning taken care of.