To set future generations up for financial success, you need to have a plan in place for transferring that wealth with the fewest penalties possible. Here's how to build generational wealth with estate planning.

How Estate Planning Can Help You Build Generational Wealth

You’ve spent your whole life working hard to achieve your financial goals, and of course you want to pass that wealth on to your children and grandchildren. However, building generational wealth involves much more than acquiring valuable assets. It also takes some careful financial planning, and creating a solid estate plan is part of that process. 

To set future generations up for financial success, you need to have a plan in place for transferring that wealth to your heirs with the fewest penalties. Estate planning can help you protect their inheritance from things like taxes, probate, lawsuits, and divorces. If leaving a lasting legacy is important to you, here are some tips on how estate planning can help you build and preserve generational wealth. 

How to Build Generational Wealth

If you’re just starting to accumulate wealth, you’ll want to diversify your investments, max out your 401K contributions, and start investing early. You’ll also need to teach your heirs how to handle wealth responsibly and make sure you have an estate plan in place. In fact, by taking the right steps now, you can rule out financial irresponsibility and make it easier for your heirs to manage their inheritance—but more on that later.

If you want to build generational wealth, you’ll also need to think about how an inheritance will impact your heirs. Would a substantial financial inheritance bump them into a higher tax bracket? Would having to pay capital gains tax on your home force them to have to sell it? 

Expenses like taxes and probate can reduce the amount of an inheritance considerably. This is one of the main reasons we advise our clients to establish a living trust. When your assets are held in a trust, they will be safe from collectors, bankruptcies, and divorces, because the trust is legally the owner and not you or your heirs. Likewise, assets held in a trust are exempt from probate and from certain types of taxes.

Why You Should Set Up a Living Trust

When you are the trustee of your own living trust, you can add or remove assets at any time. You can also continue to manage the assets in the trust, make amendments to the trust, or even choose to revoke it if you wish. After your death, management of the trust will pass to the successor trustee. This can be one (or more) of your heirs, or you can choose an impartial third party, such as a trust management company.

You can fund a trust with financial assets like your bank accounts, stocks and bonds, and 401K. But you can also include other assets, like your:

A living trust also gives you more control over your assets and how they will be distributed. The rules of the trust can easily be adapted to suit your wishes—for example, you can decide when and how your heirs will inherit its assets. If one of your heirs is underage or is not good at managing money, you can specify how often they should receive distributions and how much those payments should be. Or if you prefer to leave an inheritance directly to a grandchild because you don’t trust their parents to handle the funds appropriately, you can set up a generation-skipping trust.

Protecting Generational Wealth with Estate Planning

As a multi-generational family business, at Phelps LaClair, we understand the importance of building and preserving generational wealth. We’re dedicated to helping Arizona families create and manage sound estate plans. We can help you leave a legacy and preserve your wealth for future generations—give us a call to schedule a free consultation today.


Photo by Woody Kelly on Unsplash used with permission under the Creative Commons license for commercial use 3/15/2024.

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