5 Tips for Planning for Your Family’s Financial Future and Creating Generational Wealth

You don’t have to be on the Forbes list in order to be smart about planning for your family’s future, generations down the line. There are valuable tools to leverage including 529 accounts, estate planning, and life insurance, but it’s also critical to build financial literacy skills.

In this Motley Fool Live video recorded on July 23, Fool.com editor Desiree Jones speaks with Wealth Noir founder Damien Peters about how to set up your kids’ kids for financial success.

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Desiree Jones: What are some tips for people thinking about planning for their family’s financial futures? You already talked about home ownership, but what are some other financial planning that people should look into when it comes to their families?

Damien Peters: Generational wealth is very big for me. I’ll be honest, during college there was a time where part of my tuition was paid by my mom taking some money out of our rental properties that we owned at the time, and this, literally generational wealth. I was able to graduate undergrad without student loans, I did have a scholarship for most of it. But for the part that I didn’t, both of my parents had assets that they could take from and utilize. There’s a couple of different ways to invest for your children that make sense and I think are good options. 529 accounts, so these are specific accounts, say, very different but with some attributes similar to a retirement account around tax savings. For example, in my state here in Maryland, you can contribute money to a 529 account that you can actually use for private school in addition to college, and you receive a tax write-off for any money that I can contribute. If you imagine, if I want to send my kid to college, I can essentially pay for that and get a huge tax write-off because college is super expensive. It’s only going to be more expressive for investing in that. Each state is different, but 529 accounts are really good vehicles for education particularly. For more complex tactics that you’ll see the wealthy use are you can create an IRA or retirement account for your child if you have your own LLC, there are some rules. You should really talk to a tax attorney about this, this is not financial advice. But you can create a retirement account for your child under your company as long as they perform some meaningful work for you. For example, they can be a model for advertising material, they can shred papers for you, they can do this. This allows you to contribute money to their account, that again, will grow tax-free. It will not come into play when they apply for college, it doesn’t count against their financial aid package. If they decide not to go to college or if we get a full ride the Harvard or MIT, somewhere else, they can use that money to later on buy a house, they can use it for their retirement. It sets them up to a very good position. Understanding the estate laws and how your own different accounts will be taxed differently, an IRA, or a Roth IRA, or 401K for example, has different rules when being handed to a child, when being inherited as opposed to a traditional 401K or IRA. Understanding where to put money and where to draw for money in the future. Having an estate plan in place, so who’s going to get the money, how are they going to get the money. It’s easy to say, “Well, I put their name on the beneficiary, they’re going to get it all.” What people don’t understand is that probate court or the ability to actually access their inheritance can take months to years depending if it was not properly planned for in the first place, so having an estate plan, thinking about how you want to give your children your assets, for example. I have rental properties if I were to pass tomorrow, my four-year-old son probably can’t manage those. I have an estate plan that indicates who will take those over, who will control the money, at what point, in what age he will actually have access to all of this. This is all structured, put into place in a locked box somewhere so that God forbid something happens, I know that my next generation is taken care of. Actually a common slogan we use at Wealth Noir is “I want to pay for my grandchildren’s college education and I don’t know my grandchildren.” I may never meet them, to be honest, but I can still make changes now to plan for them. Then one good thing, especially when you have children is having good insurance policies. Ensure that you have a life insurance policy that will cover any outstanding debts, that you won’t be passing a lot of debt or burden onto your children, onto those around you. And another big, big thing is talk to your kids about money, talk to everyone about money, but talk to your wife, talk to your significant other, have a plan so that they understand what they need to do if you pass and vice versa. Talk to your kids, have them understand the importance of saving and not spending all their money if they were to get $2 million inheritance that they shouldn’t buy Lamborghinis and pop bottles that maybe they should buy some rental properties or invest in the stock market or think about things long term. But knowledge and financial literacy is one of the key things, especially when you start looking at the wealth gap and other areas like that isn’t passed down. In addition to the capital, but the education so that they understand what to do with it and that they can pass that onto future generation is really how you ensure that your current family, your future family that you may not know about or ever meet are all taken care of. I believe all the Fords, for example, are doing quite well because of one entrepreneurial individual who had the foresight to think in a way to plan for several generations down. That’s something that I think is really important for everyone, especially important in our communities and has multiplicative effects over time.

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