Generational Wealth Creation
The Vanishing Legacy
With
the final breath, it all ended. All the lifelong dreams, the fifty
years of work, raising a family, the pain of losses, the memory of joys
and happiness gone. Now all that is left of that life are the memories
of that person and the legacy of a lifetime. To those left behind, the
memories are theirs to keep, but everything else must be divided into
two categories: What they are allowed to keep, and what the
government claims to be theirs. What is truly unfortunate is that
the government claims must be settled first, and what is left is divided
between creditors of the deceased and members of the family.
A
hundred years ago it was not uncommon for farms to be worked and owned
by a family. The grandparents were there working and contributing to
the farm, along with their middle-aged children and their grandchildren.
The family structure was whole. Family pride was evident and this was
passed on generationally. The older members of the family were well
aware of the idea of legacy. They worked hard to create a better life
for the next generation. The farm, along with the memories, was their
legacy.
Today
that element of a family legacy has almost disappeared. Although
there are loving memories, the passing of the family “farm” today known
as family wealth, has been mismanaged into non-existence.
Interference from the government, an enormous lack of financial
knowledge, pride and ignorance robs families from passing tremendous
amounts of wealth to the next generation. Along with it goes the
lasting family legacy.
When
no one pays attention to the everyday details of the farm, it will no
longer be a productive entity to pass on, and in many cases, it will
become a burden and a debt to the next generation of the family. Today
the idea of viewing the family as a single unit has been ignored by
almost everyone, yet it remains as one of the only solutions for
creating lasting family wealth, generationally. The passing of the
family wealth (the farm) doesn’t occur accidentally. It is planned and
well thought-out. Rich people do this often and their families remain
rich. Poorer families, although their lives may prosper, believe in
taking it with them when they die. Their legacy is usually a home, some
savings, and other (for lack of a better word) stuff. Although those
things have value, they lack in comparison to what could have been
passed on had the entire family planned the family legacy seriously.
The
idea of keeping wealth in the family is opposed vigorously by the
government because they have a harder time getting their hands on this
money via taxes. Many politicians try to pit the rich against the middle
class, all the while the middle class aspires to be rich pursuing their
financial dreams via the lotto and casinos. The difference comes down
to this: Some families guarantee their ongoing legacy while others
gamble it away.
The Social Fiber Of The Country
The
United States started to lose an important social foundation in the
1960's. Crisis after crisis, from Vietnam to civil rights, the drug
culture to presidential assassinations, the once starry-eyed nation woke
up with a reality hangover that would plague it forever. What would
suffer the most in this historic time would be the family structure.
The “What’s in it for me” and the “I want it now” generation blossomed
and grew up to train and educate the next generation, flaunting the
wisdom of ME and I.
The
family social structure, once the cornerstone of ethics and morality,
started to crumble and with it family opportunities also crumbled.
The growth of single parent families left little room for financial
success. Government social engineering only created more problems and
greater dependence for its so-called “free” benefits. That dependency
aided the problem not the solution. The after-effects of the loss of the
family structure continue to cost the government billions of dollars.
Along with the costs, are increasing crime rates, suicide rates, divorce
rates, abortion rates, personal debt and bankruptcy rates. All of
these have a direct correlation to the loss of the family structure.
Institutionalizing Educational Standards
With
the fall of the family structure, the liberalizing of education took on
the role of psychologist in making kids feel okay and being sensitive
to their every need. The new educational goal is that no one would fail
in school. They would only fail after they were out of school. The
ability to apply school knowledge to everyday circumstances is
non-existent. Not only is the knowledge missing to grow wealth, but
also missing is the family and its ability to grow wealth
generationally. In the old days, this would be the equivalent to the
grandparents leaving the farm before they taught their kids the
farming process. Obviously, nothing would grow, which is why in
today’s family, nothing is growing either. More time and energy is
spent on teaching you how to spend your money, rather than how to save
it. You end up unknowingly and unnecessarily giving away your wealth and
wealth opportunities.
If
tomorrow you discovered an opportunity that, by planning together with
your parents or your kids, could create millions of dollars for your
family (or charities), would you take advantage of that opportunity?
If you also discovered that the money could be transferred to your
family, guaranteed and income tax free, would you do it? I have reason
to believe that you were not taught how to do this in school, any
school.
Creating the Legacy
It
came to my attention while visiting the San Diego Zoo that every animal
display had something in common. Each one of them was funded or
sponsored by a family or family foundation, a/k/a generational
family wealth. The question that came to my mind was: What did these
families do, that others didn’t or don’t do? The revelation
hit me like a ton of bricks: They leverage the least amount of money to
create the most amount of wealth by investing in their family.
RULE NUMBER ONE: In your family, use the least amount of money to create the greatest amount of wealth.
RULE NUMBER TWO: Guarantee the wealth will occur and that the legacy will transfer, income tax-free.
That
was the answer. It was clear, and believe me, it was the best trip to
the zoo I ever experienced. On the way home though, one thought kept
echoing through my head: Rich people think like rich people, poor
people think like poor people. It was troubling. I asked myself one
question: Would someone want to create wealth for their family if they
didn’t have to spend one more dime than they were spending right now?
If you could realign your assets to make wealth possible and still
retain control of the money would you do it? The key to all of this is
to consider the family as an investment.
Controlling the Asset
Investing
is not about where your money is, it’s about how can you use it to
create wealth. This is far different than buying a stock and praying
that the stock will go up. Warren Buffett never buys 100 shares and
just holds it. He, like Mark Cuban, buys shares of a stock to get some
level of CONTROL of the company. If you have the resources to take
control of a company, and you think it’s a great investment, do it. If
you want to try to guess on some companies, buy their stock and hope it
goes up, you might as well go to Las Vegas, because you have no
advantage at all to CONTROL the value of that stock.
In
the old days, the family had total CONTROL of the farm. The family
could affect the growth and outcome of the farm they owned and
CONTROLLED. Today, in generating family wealth, dabbling in stocks
doesn’t provide the ownership and control that is needed to pass on
wealth successfully. The elements that affect these types of legacies
are taxes, risk, creditors, and luck. In defense of many who follow this
strategy, professional advice has told them this is the only
way to create wealth.
Leverage
Unfortunately,
following traditional investment plans does not create multiples of
wealth immediately. If a family asset is not being used to generate
income then that asset should be used to create family generational
wealth. You would want to insure and guarantee that the wealth be
transferred to the family income tax-free. Most importantly you would
want to expend the least amount of money to create the most wealth.
This is known as leverage.
The Contract
If you were able
to invest in the oldest member of the family and they allowed you to do
so to create the ultimate family legacy, what investment would be used?
Life insurance. It is the perfect solution for family wealth
creation. It is a contract the family CONTROLS. The cash values and
death benefit grow tax-deferred and income tax-free. It is protected
from creditors and passes outside of probate. Any number of family
members including the parents can contribute to the premiums. This
creates the greatest amount of death benefit that will pass on to the
family. All of this is centered on the legacy of love. This will be a
very emotional decision and should be viewed with the proper
perspective. In the old days, all members of the family would invest
all their time and money to increase the wealth of the farm, knowing
someday it would be theirs. They didn’t do this out of greed, but out of
love for the family.
"Generation Wealth Creation" article is copyrighted by the Wealth and Wisdom Institute. 2012.
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