Generational wealth creation can be a daunting topic for many people. This is usually because the general view around this topic is that it is reserved for the super-rich. Many people believe that building generational wealth is only possible if you come from a rich family, build your retirement fund or run a successful business. Although these methods are true, they aren’t the only ones people can build generational wealth, and here are some strategies that can work for you:
1.Take up Life Insurance
This may seem obvious but the first thing you need to do in your generational wealth creation journey is to have a solid life insurance policy – preferably one that will pay your descendants a handsome sum once you are gone. This you can do even if you are not married yet or have children.
Let’s imagine for a second that instead of paying R750 pm for cable television, you opt to use the money to take up R10 Million life cover (might differ based on your risk profile), and upon your death your descendants will be paid that amount.
To level the playing field, let’s assume that although you are rich you will be giving the money from your business activity to charity, and you choose only to leave the R10 million Life Cover to your children. This means your children, who will be getting Zero from your business activity will still inherit R10 million. This means that even someone who is poor but affords R750 pm can also afford to leave R10 million to their offspring once they are dead. Wait there is something else you need to do.
2.Get a Will
You would be surprised to find that most people among us believe that you must be rich to have a will. However, you need not be super-rich to have a will. A will is a tool that you must have at your disposal to direct how your R10 million will be used by your offspring. Now, there are several ways a will can work for you, but for the purpose of this write up, let us assume that the will is only for dictating how your R10 million life cover should be used.
Let’s assume further that in your will, you dictate that the money should not be given directly to your beneficiaries, but rather it should be invested in an interest-bearing trust account (safe of course), and your beneficiaries must only live on the monthly interest. If the interest-bearing account yield only 1 % monthly, then your beneficiaries can live on it. You don’t stop there, you further dictate that from the same interest yield, your beneficiaries should each take up 10 million-rand life cover.
This means that not only is cover paying for the lifestyle of your beneficiaries, it is also paying their life cover for the next generation. You can also dictate in your will that they must have a will similar or better than yours, and their will must also dictate the same to their children, and that goes one for generations.
3.A family Trust
It obviously costs money to create a trust and to keep it running. But in this example, let’s say you will only pay the amount required to set up the trust, which could be around R7500 in today’s money. Preferably have the bank that is keeping your will for you also register the trust for you. This can be the family trust that will be handling your life cover once you are gone. In your will, you could state that the trust will be beneficiary of the Life Cover pay-out, and your children will be listed a beneficiary under the trust. You will also appoint trustees, using your will, to the trust, in the even you of your death. Remember that you are using this as tool. This trust can also buy some investment properties to be administered on behalf of your beneficiaries.
4.Start a company, owned 100% by your family Trust
This obviously is taking it a step further. This company can be owned by the trust 100% on behalf of your beneficiaries. This means, your children, under the direction of the trustees, can also purchase some cash flow positive businesses, flats, apartments for rental etc. You will dictate, using your will what these investments will be. Your will is a very powerful tool that you will be using to communicate to your children and to the administrators of your estate, and you need not be rich to do so.
5.Bonus Point: If you are not married yet, don’t get married in community of property
Using all the above mentioned, your spouse will obviously form part of your beneficiaries if you value your marriage. But you need not get married in community of property. You can get married out of community of property will accrual, and then have a joint will, drafted for both you and your spouse. They also will have their own life cover, which adds to the family wealth should you both pass on.
Now, the tools above can work for anybody. But imagine how wealthier you would be, how your mindset would be, if you went to work knowing that basics such as these are already covered should you pass on. Imagine working, knowing that you don’t have to worry about your children’s provision once you are gone. This will give you some confidence as you work diligently to build your career, business or property portfolio.
The world is now designed in such a way that anyone can become wealthy if they really want to be. And it is tools like these that ensure that the wealth is continued from generation to generation.
In fact, doing these things will build a solid foundation for anyone wanting to leave an inheritance for his children’s children, even to the 5th and 6th generation.
I wish you success.
CEO, Quality Growth International