by Nick Stewart (CEO and Financial Adviser at Stewart Group.)

Generational wealth is exactly what it sounds like; wealth (assets, property, other valuables) which is passed down by at least one generation.

When you hear the term, you likely think of historic ‘old money’ examples like the Kennedys, the Rockefellers, or those with highly visible business empires like the Disneys or the Waltons. The Waltons, known for founding retail giant Walmart, tend to top lists of the world’s wealthiest families as they still own a massive stake of the company (which was the world’s largest by revenue as at 2021).[i]

Generational wealth can certainly reinforce societal status and the differences between the ‘haves’ and ‘have nots’. Many of the successful examples of multi-generational wealth transfer started with a successful business. However, building and maintaining a successful business is a long, hard road – and while it’s less common for multi-generational fortunes to last without this base, some exceptions do exist.

Generational wealth is a technical term. You don’t need to reach the level of the Waltons to provide building blocks for your family’s future. There are simple steps you can take to leave behind generational wealth, which can still have a significant impact.

1.)    Start early – and encourage your children/grandchildren to do the same. It’s easier to start small and build up over time than to depend on a change in fortune (literally) later in life. Think of it like planting a tree in the backyard of the family home; if you want to build a treehouse for future generations to use, you’re going to need time for it to mature from a sapling to a sturdy trunk.

2.)    Save and invest diligently in a robust, globally diversified portfolio; think long term and don’t depend on compound interest when inflation will easily diminish the spending power of your savings by the time they get to the next generation.

3.)    Consider taxes and whether you can develop a plan to minimise unexpected costs on those receiving your estate. You don’t want the benefit of an inheritance to be undermined by a big tax bill for recipients.  With so many families being spread around the globe now, many parents and grandparents are blissfully unaware of the tax consequences of distribution between countries.

There are also common barriers to the successful transfer of generational wealth:

1.)    Family disputes. Managing emotions is a key component of wealth management. It’s inevitable that when family is involved, so are emotions. This is why it’s important to work with an impartial third party like a trusted financial adviser.

2.)    Poor financial management skills. Similar to accumulating wealth, educating younger generations about how to handle wealth should start early to promote good financial habits and long-term thinking.

3.)    Inadequate estate planning. It’s all well and good to build inheritable wealth, but equally crucial is having an up-to-date Will covering allocation of funds, trusts, and other assets. This process can also help identify any tax pitfalls, as per above.

4.)    Marital issues, divorce and other transitions can create complications – so can family growth, as there will be more to consider when spreading inheritable assets.

5.)    Lack of trust or ability to commence wealth transitions. As unpleasant as it may be to think about the realities of aging, we need to make these arrangements before cognitive decline starts to become an issue – which makes the process that much harder for many families to navigate.

6.)    Lack of diversification. Make sure your wealth isn’t tied up in one asset class, industry or geographic location – research shows us diversification is key to building and maintaining wealth over time as economies and markets fluctuate.

And – market volatility itself. A good financial plan will account for ups and downs, but you may also need to adjust your lifestyle at times to continue the path to long-term success. The amount in the kitty can fluctuate to reflect good times and bad. The Vanderbilts, one of America's wealthiest families, learned this lesson the hard way during the Great Depression. Despite their vast assets declining, they continued to spend excessively, resulting in a significant loss of their fortune.

There can be negatives associated with generational wealth as well; like loss of work ethic, difficulty finding and maintaining generational relationships, and family conflicts.

However, there’s no denying that inter-generational transfer of wealth can help to provide your family with opportunities they may not have otherwise.

Instilling values of financial education, philanthropy, and purpose beyond wealth accumulation can help provide balance and perspective.

And if the idea of being the family’s financial steward is overwhelming… have a chat with a trusted investment fiduciary about your goals. It’s a great place to start.

• Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 301.

• This article was created in conjunction with AES International. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.investopedia.com/articles/insights/052416/top-10-wealthiest-families-world.asp

https://www.aesinternational.com/blog/how-to-build-and-destroy-generational-wealth