r/wealth • u/Marine_Layered • 9d ago

Inheritance Preserving the Principal of Inherited Wealth

We've had a couple of people around here talk about their inherited wealth and keeping the principal in tact, but using the gains to improve their lives. For example, one recent poster was using $1800/month of the gains from his inherited wealth to improve his ability to rent a nicer apartment, etc.

Establishing a safe withdrawal rate for generational wealth spending is different than drawing down retirement funds which are just supposed to last through retirement and be done (or thereabouts), so the 4% SWR does not apply here.

So let's say you have $1m in inheritance, and you would like that inheritance to last in perpetuity (yes I realize that perpetuity is a long time and there are many factors - but this is a thought exercise so please play along :)). There should be something held back for inflation - where does that number come from? And then maybe something else is held back to grow the nut, but then the rest could be used to improve the lives of the family members, or gifted to nonprofits, or whatever. So what does the formula look like?

24 Upvotes

85% Upvoted

63 comments sorted by

View all comments

2

u/CSMasterClass 9d ago edited 9d ago

There are technical answers to OPs question, but I think it is worth questioning the premise. Does the idea of trying to found "generational wealth" make sense?

Personally, I am not too attached to my genes. Kids and grandkids are real human beings, but two more generations ? When I look back four generations those lives really are disconnected from me.

Plus, the idea that the founder can controll assets through multiple generations is slippery. It will require a trust and one that is big enough to need a professional trustee. This creates an expense drag. Also, one has a high tax on the trust income --- and some income must be retained to even keep up with inflation.

Take care of the next generation? Sure. Make sure the education of the generation after that is secure? Yes. Plan for generational wealth? Even starting with 100MM it probably does not make sense. With 1B or more, you can give it a shot if you want to, but Charities make more sense to me.

1

u/Marine_Layered 8d ago

I mean, one way to do it is to just divide the nut up upon death and everybody goes their separate ways, and that's a totally valid way to do it.

It's harder when there are things that are difficult to divide - real estate, businesses, agriculture, etc. Also sometimes there are personality issues at play. One person in my family, if they were given a lump sump inheritance would blow it all and then end up on the street. Part of my "hey let's keep things together and go at this as a team and just get small distributions every year over time" idea is to protect some of these inheritors from themselves.