Generational wealth: What is it & how do you build it?

Generational wealth is the accumulation of financial assets, like cash, investments, real estate and business ownership, that can pass from one generation of a family to another. There are many ways to pass on wealth. A grandfather may pass down his art collection, your parents may want the family farm in your hands, or you may want to start building monetary wealth to leave to future generations.

While it may sound like something only for the ultra-wealthy, building generational wealth rests on a few principles and practices available to anyone who wants to create a financial foundation to support their loved ones for generations to come. Here's what you need to know to get started.

Generational wealth refers to transferable financial assets—including real estate, investment portfolios, business equity and cash reserves—that pass from one generation to the next through estate planning and inheritance. The goal of generational wealth is to help give your family a financial head start. The money and assets you accumulate now can grow and sustain your kids, grandkids and future generations.

Homeownership has long been one of the most accessible ways to build generational wealth and increase family equity. For example, your parents may have bought their home for $250,000 in 1985, and now it’s worth $850,000. They could transfer this appreciating asset to the next generation through their estate plan, or liquidate the property and establish irrevocable trusts or 529 education accounts for each grandchild.

Building generational wealth isn't the same as regular savings. You may be saving now for retirement, an emergency fund or a bigger financial goal, like buying a house. Creating wealth that will last generations means focusing specifically on building and preserving assets that you intend to pass down to your loved ones, giving them financial security for the long term.

Generational wealth is important because it can help provide your loved ones with long-term financial security and a foundation for future opportunities.

It can be a way to meaningfully direct large sums of money, such as paying for college, providing start-up funds or helping with a down payment on a home. Working with a financial professional can help you develop generational wealth strategies that maximize the impact of your generosity.

Generational wealth can help:

• Provide financial security. Your loved ones can have a stable financial foundation, a safety net that can help reduce stress and hardship.
• Create a new opportunity. Heirs can use funds to pay for higher education, invest in a business or focus on a career in charitable work.
• Lift families out of poverty. Having wealth to pass along can change the trajectory of many families, helping them build on previous success instead of starting fresh.
• Leave a lasting legacy. Families have the power to leave a legacy, support the causes that matter to them and promote strong values around hard work and generosity.
• Reduce inequality. Generational wealth may be able to lift up loved ones who may have been historically excluded from most wealth-building opportunities.

Ideally, if wealth is managed well, your descendants may not have to worry about poverty or debt. That can be not only a significant financial relief, but an emotional one, too.

Building generational wealth is no different than creating any other wealth. It often starts with building and executing an intentional financial plan that prioritizes growing and preserving assets for future generations. Here are a few common strategies:

Life insurance is designed to help financially protect your loved ones and also can build wealth for them. For example, you may have a $1 million term life contract. When you die, your four children each receive a $250,000 lump-sum, tax-free payout. With it, they could cover education, pay off debt, grow investments or start a business.

If you have a whole life contract, you may use the cash value of the contract to accumulate wealth. Withdrawals from it could be used to supplement your wealth-building strategy.

Real estate investment strategies—including primary residence equity, rental property income and Real Estate Investment Trusts (REITs)—can effectively grow net worth through property appreciation, rental cash flow and portfolio diversification. Homeownership helps build equity, so your home could be the first building block toward more significant wealth. For example, the average price of a home sold in 1990 was about $150,000; since then, it’s jumped 243%.

You also may explore buying rental properties or investing in commercial opportunities like office buildings and retail spaces. Real Estate Investment Trusts (REITs) can add real estate holdings to your portfolio without direct involvement.

Education often opens the door to higher lifetime earnings, financial stability and new opportunities. Families can leverage college saving accounts like 529s, Coverdell ESAs and sometimes Roth IRAs to save and invest for these goals.

Family members also can gift to these accounts. If you have a young family, you could encourage your parents to open and own a 529 account for their grandchildren or take a qualified education distribution from a fully funded IRA and use it to pay for tuition, fees, books and supplies.

About a third of all small businesses are family-owned. Building a business that can be passed down is a powerful way to create wealth for your descendants. With good planning, a family-owned business can provide income, opportunity and financial security for many generations.

However, passing down a small business takes careful succession planning. If this is a path you want to take, involve your family in the discussions and decisions early and work on clarifying your family vision and values to define what success looks like so everyone's on the same page.

There are many other ways to build generational wealth, including investing in assets that can grow in market value and be passed on to your heirs, including:

• Stocks, bonds and mutual funds
• Art, collectibles and luxury goods
• Intellectual property and creative works
• Private equity investments in companies or startups

For example, an investment in farmland, gold or the rights to a patent or novel all have the potential to grow significantly over time. And because alternative investments don’t often directly correlate to market trends, a diverse portfolio may protect your investments from inflation and market downturns.

Wealth preservation for future generations requires comprehensive estate planning strategies, including asset protection trusts, tax-efficient transfer mechanisms, and structured beneficiary education programs. Generational wealth management is the strategic, long-term approach to growing, preserving and eventually transferring family assets so they last across multiple generations.

Any solid generational wealth management strategy involves active planning:

• Use trusts to protect and transfer wealth. Establishing trusts can help avoid probate, minimize taxes and set specific conditions for inheritance.
• Work with professional advisors. Professional financial, legal and tax advisors can provide expertise and tailor strategies to your individual needs and circumstances.
• Educate heirs. Consider teaching financial basics to your loved ones in childhood and include family members in discussions about values, responsibilities and estate plan structures.
• Diversify assets. Diversifying your holdings among stocks, mutual funds, real estate, private equity and alternative investments can help reduce risk during volatile markets.

There’s also the potential risk of wealth depletion over time. Being proactive with communication, financial education and trust may help reduce conflicts and prepare your family before they receive their inheritance. That can be the key to ensuring the wealth you’ve built lasts for generations to come instead of being spent on spur-of-the-moment purchases.

Generational wealth often doesn’t last beyond three generations. Research shows about 70% of wealthy families lose money by the second generation, and 90% by the third.

There are many reasons wealth fades over generations. A lack of financial knowledge, poor communication and lifestyle inflation are common culprits. That’s why education, communication and intentional planning are pillars of generational wealth management.

Inheriting wealth is a privilege. It can offer a chance to break cycles, build businesses, escape debt or retire early. When you live within your means and have a generational wealth strategy that aligns with your goals, you're setting up future generations for success.

Generational wealth isn’t just for the ultra-wealthy. For many, it’s the result of intentional planning, open communication and a commitment to family values. While many fortunes fade by the third generation, yours doesn’t have to.

Speaking with a Thrivent financial advisor can help you create a generational wealth strategy for the long term, with thoughtful, intentional steps to achieve your goals.