Statistics reveal that 70% of rich households lose their wealth by the second technology, and 90% have exhausted it by the third. For households who’ve spent a long time constructing profitable companies, accumulating actual property portfolios, or producing substantial earnings, this signifies a devastating erosion of wealth legacy.
Nonetheless, in response to Steven Bowles, CLU®, founding father of Catalyst Advisory, this final result will be prevented. After spending seven years working inside a household workplace advisory group that serves ultra-high-net-worth households, Steven has seen firsthand what distinguishes households who create lasting legacies from these whose wealth dissipates inside a technology or lower than two.
“Wealth destruction throughout generations is the results of particular, preventable errors,” he explains. “The households who succeed long-term perceive that defending wealth requires as a lot intentionality and technique as constructing it within the first place.”
Understanding the Two Major Threats
Steven identifies two elementary forces that destroy household wealth: erosion and division.
Erosion
Erosion primarily happens by way of taxation. Beneath present regulation, estates valued above roughly $13.99 million for people or $27.98 million for married {couples} ($15 million /$30 million in 2026) are topic to a 40% federal property tax on quantities exceeding these thresholds. Though current legislative adjustments have supplied some reduction from scheduled reductions, the tax nonetheless considerably drains household wealth.
“Whenever you have a look at stability sheets of rich households, particularly those that’ve constructed wealth by way of companies and actual property, you notice how shortly property taxes can devastate a household’s monetary legacy,” Steven notes. A household value $50 million may face property taxes within the tens of millions. With out liquidity to pay these taxes, they’re pressured to promote belongings, typically at unfavorable phrases.”
The erosion problem worsens for households holding illiquid belongings. Actual property traders and enterprise house owners typically discover themselves “asset wealthy however money poor.” When property taxes are due inside 9 months of demise, households missing enough liquidity face powerful selections.
Division
Division poses the second main menace when wealth is given on to beneficiaries with out satisfactory safety. As soon as belongings go straight to heirs, they change into vulnerable to dangerous selections, divorces, lawsuits, and collectors.
“I’ve seen it numerous occasions,” Steven says. “A profitable first technology builds substantial wealth, then distributes it on to their kids. Inside a couple of years, that wealth is gone. Not essentially as a result of the youngsters are irresponsible, however as a result of they weren’t ready for all times circumstances or enterprise failures that depleted the belongings.”
Why Conventional Approaches Fail
Many households comply with the “do nothing” method. They construct wealth however don’t use formal methods to guard it. Generally they’ve a easy will, however nothing extra superior.
“Permitting a major inheritance to move on to your kids with out construction creates issues,” Steven warns. “It exposes them to dangers they might not be outfitted to deal with.”
Conventional property planning normally divides belongings equally amongst heirs with out contemplating household relationships, particular person abilities, or asset varieties. For instance, a enterprise making up 80% of a household’s web value is perhaps cut up amongst siblings with totally different pursuits or talents to handle it.
Maybe most significantly, many households don’t talk successfully throughout generations. Wealth creators who’re first-generation traders, typically preoccupied with creating their wealth, could overlook the significance of teaching their kids about managing wealth, understanding the roots of the household’s prosperity, or the core values that fueled their accomplishments.
The Lacking Ingredient: The Household Structure
Past authorized frameworks, profitable multi-generational households use one thing Steven calls a household structure. This values-driven construction guides how wealth is managed and handed on.
“A household structure isn’t a legally binding doc,” Steven explains. “It’s a press release of values, expectations, and ideas that information the household’s relationship with wealth. It solutions questions like: What will we imagine about cash? What tasks include being a beneficiary? What alternatives ought to wealth create for future generations?”
This doc works alongside trusts and authorized constructions to create a framework for wealth preservation. It’d define expectations for work ethic, training, or charitable giving. It might set up processes for accessing household sources or making main monetary selections.
The structure features explicit power when paired with early property planning. Somewhat than kids discovering their inheritance solely after a mother or father’s passing, they study in regards to the household’s wealth technique early on, their future roles as stewards, and their alternatives.
“The households who do that nicely aren’t elevating youngsters who really feel entitled to wealth,” Steven notes. They’re elevating youngsters who perceive they’ve a duty to protect and develop what they’ve inherited, and to arrange the subsequent technology to do the identical.
Strategic Instruments for Wealth Preservation
Households can make use of a number of highly effective instruments to interrupt the three-generation curse. They need to perceive the threats and the significance of values-based planning.
Irrevocable Trusts
Irrevocable trusts are among the many handiest instruments for transferring belongings out of the taxable property whereas sustaining management over how these belongings are used for future generations. Not like revocable trusts, which stay a part of the property for tax functions, irrevocable trusts set up a authorized separation between the grantor and the belongings. When accurately arrange, these trusts can final for a number of generations, providing advantages to heirs and shielding belongings from taxes, collectors, and poor monetary selections.
Steven regularly recommends that these trusts embody HEMS provisions, which allow distributions for Well being, Schooling, Upkeep, and Help.
“This method offers for beneficiaries’ real wants whereas stopping them from merely liquidating the belief for poor causes,” he emphasizes.
Superior methods embody basic companion and restricted companion constructions that allow discounted valuations throughout asset transfers.
“When you’ve got non-voting shares or restricted partnership pursuits, you’ll be able to typically transfer a greenback of worth utilizing solely 60 or 70 cents of your exemption,” Steven notes. That degree of effectivity can save households tens of millions in property taxes.”
These multi-generational trusts, typically known as dynasty trusts, can final for many years or centuries, relying on state regulation. As an alternative of being taxed and divided with every technology, the wealth stays protected and grows throughout the belief construction.
Life Insurance coverage as a Liquidity Answer
Life insurance coverage is a necessary property liquidity instrument for households with vital illiquid belongings. Steven noticed that this technique is regularly utilized in his household workplace work.
“In case you personal $100 million in actual property and companies, your property will owe substantial taxes,” he explains. “With out liquidity, your loved ones is pressured to promote properties or enterprise pursuits shortly, typically under market worth. Life insurance coverage creates tax-free capital exactly when it’s wanted most.”
Steven regularly recommends premium finance methods for ultra-high-net-worth households, using financial institution loans to fund life insurance coverage insurance policies held in irrevocable trusts.
“Banks will lend cash to trusts with applicable collateral,” he notes. “This enables households to create substantial demise advantages with out depleting their very own capital.”
The insurance coverage coverage is structured with excessive money values that develop over time to cowl the financial institution mortgage, leading to a fully-paid coverage that provides liquidity upon demise. In the meantime, the demise profit stays outdoors the taxable property as a result of the belief owns it.
“For an actual property investor with a $50 million portfolio, a $10-15 million life insurance coverage coverage in an irrevocable belief is perhaps the distinction between the household protecting the properties or having to liquidate the whole lot,” Steven says.
Correct Enterprise Structuring
Steven highlights the significance of correct entity structuring as households construct wealth by way of actual property and enterprise investments.
“In some unspecified time in the future, for those who’re critical about constructing wealth outdoors the normal W-2 and financial savings accounts, you should construction your self extra like a enterprise,” he advises.
That would contain holding firms, LLCs for numerous properties, or GP/LP constructions supporting asset safety and easy wealth switch.
These constructions serve numerous features. They safeguard belongings from legal responsibility, allow relations to purchase possession stakes, and permit for discounted transfers to trusts by way of valuation strategies.
For enterprise house owners, funded buy-sell agreements present important safety.
I’ve seen too many companies with out correct succession plans,” Steven notes. “A sudden demise creates chaos. Companions or heirs are pressured to scramble. A correctly funded buy-sell settlement, typically utilizing life insurance coverage, ensures enterprise continuity and truthful therapy of all events.
Legacy By Design, Not Default
The three-generation curse is just not an unavoidable destiny. It’s the anticipated final result of neglecting the dual risks of abrasion and division, however it may be overcome by way of cautious planning, diligent work, and meticulous monetary structuring.
Households who efficiently switch wealth throughout generations achieve this by way of planning that entails authorized constructions, tax methods, asset safety, and values-based training. By understanding that the wealth they’ve constructed deserves the identical focus, plan, and objective through the switch because it did through the accumulation, many households have confirmed able to preserving and constructing upon it.
“I’ve labored with households who’ve accomplished this brilliantly,” Steven displays. “The wealth continues to develop, every technology has alternatives that the earlier technology created, and there’s a real sense of stewardship quite than entitlement. That’s what multi-generational wealth appears to be like like when it’s accomplished proper.”
For households constructing wealth, the message is obvious: your planning immediately determines whether or not your legacy lasts a long time or disappears inside a technology. The curse is actual, nevertheless it’s additionally solely preventable.
