Yahoo Finance 4 Financial Assets That Will Build the Most Generational Wealth
For many people, making money is an important part of their financial plans. But if you want to create something that lasts beyond your own lifetime, building generational wealth should be the real goal. Generational wealth includes money and assets that can provide support and opportunities for your children, grandchildren and future family members long after you’re gone.
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To build true generational wealth, you’ll need to have a good strategy and plan ahead carefully. To understand the different types of investments available, GOBankingRates talked to financial experts, who explained some of the best ways to create that kind of lasting wealth.
Life Insurance
Life insurance can play a huge role in building and preserving generational wealth. There are unique benefits to life insurance that can protect your family while also providing a solid foundation for future generations.
“For pennies on the dollar, you can purchase a large amount of cash value life insurance, which can grow the wealth while protecting it too,” said Chuck Czajka, founder and CEO of Macro Money Concepts. “It can even be tax-free if set up right. Another way to look at this is like taking one dollar and having it do the work of 10 dollars.”
Permanent life insurance policies (like whole life or universal life) combine a death benefit with a cash value component that accumulates over time. This cash value is often accessed through policy loans or withdrawals, providing a source of funds for various purposes, including funding educational expenses, starting a business and supplementing retirement income.
“You don’t know how much time you have left on earth, but you do know that someday your time will be up,” Czajka said. “Your life is a very important asset. Imagine instead of just funding your 401(k), you also purchase a strong cash value life insurance policy on your parents. If they are still around when you retire, you can use the cash value as a tax-free income stream. Then once they pass, the death benefit will be paid tax-free.”
When you designate beneficiaries and structure the policy right, you can ensure a smooth transfer of wealth to future generations while keeping the impact on taxes minimal.
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Real Estate
Real estate has long been regarded as a great tool for building generational wealth. Property is tangible, and it tends to appreciate in value. Not to mention it can also generate passive income.
“Real estate is the one investment that has been around since the beginning of time, it seems like,” said Stoy Hall, founder and CEO of Black Mammoth. “It is also not correlated with the stock market, so if you want true diversification plus depreciation, this is the way to go. Not to mention there are many avenues within real estate.”
Whether it’s residential, commercial or even agricultural, real estate offers multiple paths to create a financial legacy. But you should be certain you’re not burdening your heirs with a property that comes with high maintenance costs.
“Properties that require extensive upkeep, such as large estates or vacation homes, can burden heirs with ongoing expenses,” said Alex Doyle, CFP, financial planner at Illumination Wealth. “Consider selling such properties or converting them into rental properties to generate income, or even donating them to a charitable organization.”
“If set up correctly, a rental property could generate an income stream for life,” Czajka said.
Education
It’s fairly obvious that financial assets — real estate, stocks and life insurance — are important parts of a generational wealth strategy, but investing in education can’t be overlooked.
“In the equation of generational wealth, education is the multiplier, and real estate is the dividend,” said Chrissy Grigoropoulos, founding partner at The Grigoropoulos Law Group. “Education fuels ambition, and real estate fuels opportunity — both are essential for cultivating generational prosperity.”
A good investment account to look into if you want to help fund higher education for a loved one is a 529 plan. These accounts can be used, tax-free, for educational expenses — meaning your children and grandchildren can pursue their academic goals without going into debt. That’s a huge advantage, and one that will result in generational wealth.
A Business
If you’ve got an entrepreneurial spirit, building a business can be an excellent way to create generational wealth. A thriving business not only generates income but also has the potential to be passed down to future generations.
Just remember: Before you pass your business on to your heirs, you’ll want to create a clear succession plan so that there’s a smooth transition between generations.
“Heirs might lack the necessary skills or interest to run the business,” Doyle said. “Train potential successors or consider selling the business and distributing the proceeds among heirs.”
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This article originally appeared on GOBankingRates.com: 4 Financial Assets That Will Build the Most Generational Wealth
