The Money Mustache Community
General Discussion => Post-FIRE => Topic started by: bwall on April 05, 2017, 07:18:57 PM
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Around this time every year Forbes presents its list of worldwide billionaires. I enjoy reading it and daydreaming, for lack of a better word. Over the years, my thoughts would vary:
a) How did these young people get to be so rich? Obviously, they were born into wealth, (but not always).
b) Why do the old billionaires still work? Not all of them do, though. Some are busy spending all that money, but their net worth still increases faster than they can spend it.
c) In 2003, China had zero billionaires. Now they have more than any other country, save USA. How does Forbes track this? Don't all the names seem/sound the same? With so many opaque business deals there, how do they collect that information?
d) Sam Walton's heirs together are richer than Bill Gates. (DAMN!!!)
e) None of my ancestors had wealth, but what if I were the one to pass wealth on to the family and give them all the tools to succeed on the world stage?
Thus, I posit the question in the header: What is the best way to pass along assets to the next generation? I'm under no illusions that I'll ever be a billionaire or a hundred millionaire. I'm at six zeros now in my mid 40's and with luck, I might have another zero before I die, but a seventh zero is not important to me.
For me, I'm more interested in the best/most efficient use of the assets I've accumulated. An integral part of this is to teach my offspring about personal finance and instill the values necessary to manage and grow large amounts of money.
Has anyone else had similar delusions of grandeur?
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Nah.
The lives of dead rich people are only interesting when they've created something extraordinary. Nobody cares about the mass affluent dude with a regular life who passed away leaving a million or two to his favorite project.
Leave money because you want to, not for fame.
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It's almost an absolute that, by the third generation, wealthy heirs are so detached from their money that the fortune is pissed away. The only real exceptions to this are where the originator of the wealth had so much money (like Rockafeller) that even multiple generations have a difficult time diluting the pool. Today, you would most likely need a "B" in front of your "illion" to have a chance at overcoming this generational monetary problem. Short of that, education would have to be the only other way for it to happen, but inevitably the odds are against that becoming so ingrained, and important, to all the heirs that it is passed to a third generation. Maybe a "personal finance" awakening due to the internet will change this over time.
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I've often thought about my "200 year plan". I even mapped out the next 200 years on a timeline. I put all my children, grandchildren, great-grandchildren, etc, based on average life expectancy and average age of parents at birth. The best outcome would be for my descendants 200 years from now thanking me for creating a stable inheritance for them.
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Mr. Green; I've read the studies as well, but I'm not convinced that it is a law of nature. I tend to believe that now that people are aware of these facts, they can steer against them. For example, since I'm aware of the real possibility of them wasting all the money, I want to teach my offspring the value of money so that they don't piss it away. Previous generations weren't aware of this risk, presumably, and therefore ignored it.
I know that in Germany people have been successful at passing family wealth on for generations, with exceptions, of course. How do they do it? Why does it happen there and not here?
Solon: That's exactly what I'm talking about! How does one go about doing this? How to plan now, so that in 200 years my decedents will benefit from my foresight and thoughtfulness?
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Perhaps make a money making competition. As a condition of the trust, the heir of each generation who accumulates the most assets by age 40 at the time of death of the previous recipient of payouts will be the new recipient of the payouts. That way the most successful branch will have the vast majority of the money.
Some rules and loopholes to disinherit unworthy heirs and you have a plan.
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I've often thought about my "200 year plan". I even mapped out the next 200 years on a timeline. I put all my children, grandchildren, great-grandchildren, etc, based on average life expectancy and average age of parents at birth. The best outcome would be for my descendants 200 years from now thanking me for creating a stable inheritance for them.
I'm not sure if I'm impressed or concerned.
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I've thought about this a lot as well. I think the best option is, as mentioned above, to instill those values of non-wastefulness and frugality in your offspring so they're not inclined to waste the family fortune. But what about a generation or two after that, what if one of them is a total dipshit and pisses it all away? I think that is where trusts come in.
An example would be to start an endowment that spits out a certain amount each year, principal can't be touched, and up until age 30 the money can only be used for education or purchase of a primary or investment residence (cost not to exceed 150% of the median home value in the area)... some additional restrictions to prevent stupidity.
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Perhaps make a money making competition. As a condition of the trust, the heir of each generation who accumulates the most assets by age 40 at the time of death of the previous recipient of payouts will be the new recipient of the payouts. That way the most successful branch will have the vast majority of the money.
Some rules and loopholes to disinherit unworthy heirs and you have a plan.
I understand the logic, but those are exactly the people that need the least amount of help. OTOH, if you only reward incompetence, then that's all you'll ever get.
And in the above scenario, what can the great grandchild help the fact that their parent was a personal finance idiot and then they therefore have nothing? How to make provisions for incompetence (or disinterest) without punishing the generation after that who perhaps would have a great aptitude for personal finance?
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Some complications sure. Either have payouts divided equally to 2%/heirs per annum or simplify it to a primogeniture system where firstborn gets the entirety of the payouts, or perhaps 1.5% with everyone else splitting .5%
As for those getting help who least need it. Money attracts money. I would rather give money to those that have it and keep it than those who don't.
We may be only poor millionaires in our old age, but perhaps some of our great grand kids could be Mar-a-Lago rich.
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There is a book about maintaining wealth over generations "Family Fortunes" by Bill Bonner. The really big fortunes that have lasted generations have relied on a "family office". The family office manages investments, legal matters, tax matters, etc., but more importantly manages the family via a 'family constitution'. You have to build a culture that preserves wealth over generations.
A family office is unfortunately not cheap. They run about a 1 million a year in fees so are rarely used for fortunes less than 100 million. Without one, you are (probably) looking at the old saw 'shirtsleeves to shirtsleeves in three generations'.
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Creating Trusts in which the recipients can only pull out the profits will have that effect. Or limit it to 50% of the profits, and after a long time you become Norway, with a ridiculously huge fund that pays out to taxpayers every year, continues to increase in size, and is better every year.
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There is a book about maintaining wealth over generations "Family Fortunes" by Bill Bonner.
A family office is unfortunately not cheap. They run about a 1 million a year in fees
Thanks for the book recommendation, I'd never considered that a book would have already been written about this topic. Like most things, once someone points it out, it's of course as obvious as the nose on your face.
As for the cost..... I think that it should be possible for the DIY Mustachian crowd to hack the concept of the family office in their own way. Is there a book out on that? Or maybe someone here needs to write it? :)
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Maybe we just need a "family office app"! lol
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As for those getting help who least need it. Money attracts money. I would rather give money to those that have it and keep it than those who don't.
I guess. But, that's not for me. For example, my dad is horrible with money. He has no concept of restraint or saving for a rainy day. Perhaps that is why I'm so good at it, though? I saw him pissing it away for so many years on stupid stuff that I didn't want to be like that.
So, if my grandad had followed the approach above, then my dad would have gotten nothing. Which means that I would have also gotten nothing.
It's a bit of a tough nut to crack: those who need personal finance help the most are the least deserving, and those who need personal finance help the least are the most deserving. What is the best decision to make in a situation like this?
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Unless a third party trustee is used, an heir or group of heirs can choose to undo what you've set up. Using a third party is costly, and probably wouldn't make sense for small amounts. It would be interesting to see examples of how, say a $5 million trust would grow compared to how a family expands over generations. If it was set up such that only a percentage of growth was distributed, would the family get so large after several generations that it would become trivial money?
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Nobody can waste money faster and more frivilously than family. If you want your legacy to endure, you need to set up a charitable trust which preserves and inflation-proofs the principle. If you do this right, your legacy will continue to benefit people for generations. Universities are often set up to manage this adequately as are some churches. The Gates Foundation manages this for many billionaire donors, particularly W. Buffett.
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For a interesting read, John Galsworthy's The Forsyte Saga is a somewhat sociological account of how an English family of considerable, but by no means legendary, means perpetuates itself in the XIX and early XX centuries.
You will find much that resembles the discussion on these forum, including living on the yield of gilts at four percent as the most moral of livings.
It's free to download too...
http://www.gutenberg.org/ebooks/4397
NOTE: If you watched the TV mini-series it does not count, any more than watching Gilligan's Island substitutes for reading Robinson Crusoe.
Not the same at all.
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. . .The really big fortunes that have lasted generations have relied on a "family office". The family office manages investments, legal matters, tax matters, etc., but more importantly manages the family via a 'family constitution'. You have to build a culture that preserves wealth over generations.
I think this is the key right here. It seems that the best insurance against your heirs frittering away their money is to instill the values that helped you earn that money in the first place. You want heirs that value frugality? Good news--you're the one raising them, so you get to teach them that! And once you teach them frugality, teach them why you taught them frugality so they can teach their kids.
Boy, do I like the idea of a "family constitution." My kids are still very small, but once they get to be school aged, I will plan to do this.
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Here's a well-thought out article about "dynasty trust", and the best way to pass on wealth and knowledge into the future:
http://actionecon.com/building-generational-wealth/
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
You'd need a mechanism for bringing in *ahem* outside blood. Wouldn't want those cousins to start getting frisky because there aren't any alternatives...
My thoughts would be that the kids would rebel against this plan rather quickly. Most would want to venture out into the world and live their own life, rather than a pre-destined path laid out for them.
Free will and all that jazz...
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
Growing up in a farm-ish suburb of Indianapolis, I know two families that have basically done this and the third generation are now building on the properties. There is no communal child care or anything but they do all share a large pool, outdoor kitchen/grill and similar amenities.
I'm not sure what the official financial set up of it is, but I do know that the third generation (the ones my age) benefited from the cheap land and house building and it has been enough to help them get a solid start.
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There is often a religious influence to such planned communities.
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Here's a well-thought out article about "dynasty trust", and the best way to pass on wealth and knowledge into the future:
http://actionecon.com/building-generational-wealth/
Thanks for this! I thought it was a really interesting article and thought the idea of funding grandchildren's retirement with a large-ish amount at birth was particularly inspired. If you don't mind I'm going to cross post this to the mini-mustache thread.
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
You'd need a mechanism for bringing in *ahem* outside blood. Wouldn't want those cousins to start getting frisky because there aren't any alternatives...
My thoughts would be that the kids would rebel against this plan rather quickly. Most would want to venture out into the world and live their own life, rather than a pre-destined path laid out for them.
Free will and all that jazz...
Main thing I see blowing a plan like this would be the first generation of kids electing not to (or being unable to) have kids of their own. I get enough grief from grandparents for being the only male grandchild and not wanting kids and "continuing the family name." Careful with "when they get married" and "when they have kids" as opposed to if. I'm 26 and do plan on getting married and do not plan on having kids, and I certainly wouldn't want specific familial expectation/pressure to do either.
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It's almost an absolute that, by the third generation, wealthy heirs are so detached from their money that the fortune is pissed away. The only real exceptions to this are where the originator of the wealth had so much money (like Rockafeller) that even multiple generations have a difficult time diluting the pool. Today, you would most likely need a "B" in front of your "illion" to have a chance at overcoming this generational monetary problem. Short of that, education would have to be the only other way for it to happen, but inevitably the odds are against that becoming so ingrained, and important, to all the heirs that it is passed to a third generation. Maybe a "personal finance" awakening due to the internet will change this over time.
Heinlein had a couple of interesting concepts presented in some of his books
"The Number of the Beast" - Zebediah (in addition to needing a name starting with Z) could only come into family money by first accumulating a large stack on his own and presenting it in cash to the trustees.
Variants on group marriage/family corporation where one "buys in" when marrying in (either immediately or over time) and children are started off with shares when they are of age.
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I'm 26 and do plan on getting married and do not plan on having kids, and I certainly wouldn't want specific familial expectation/pressure to do either.
Expectations are how values are passed from one generation to another. In large part, I am successful in life because my parents always expected me to be successful. My own work ethic isn't strong enough to overcome an environmental bias towards failure.
Obviously sometimes we need to defy those expectations, but I question the wisdom of asking the older generation to entirely refrain from sharing their values and experiences with us.
My parents did want me to marry and have kids. Not because they want a dynasty, but because a family made them happy and they thought (correctly) that it would make me happy.
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I'm 26 and do plan on getting married and do not plan on having kids, and I certainly wouldn't want specific familial expectation/pressure to do either.
Expectations are how values are passed from one generation to another. In large part, I am successful in life because my parents always expected me to be successful. My own work ethic isn't strong enough to overcome an environmental bias towards failure.
Obviously sometimes we need to defy those expectations, but I question the wisdom of asking the older generation to entirely refrain from sharing their values and experiences with us.
My parents did want me to marry and have kids. Not because they want a dynasty, but because a family made them happy and they thought (correctly) that it would make me happy.
"Being successful" or "being happy" is far more malleable than "getting married and having kids."
My mom wanted me to finish a degree that didn't make sense for me. My GF's mom wanted her to become a fellow welfare queen and/or latch onto some rich fuck. Our parents can be wrong about what's best for us, even if their heart is in the right place. (And plenty of what my parents value does match what I value.)
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
Growing up in a farm-ish suburb of Indianapolis, I know two families that have basically done this and the third generation are now building on the properties. There is no communal child care or anything but they do all share a large pool, outdoor kitchen/grill and similar amenities.
I'm not sure what the official financial set up of it is, but I do know that the third generation (the ones my age) benefited from the cheap land and house building and it has been enough to help them get a solid start.
I am 33 (and live in a high cost of living area), and from what I can see of my peers and myself the biggest stress can be either
- finding somewhere nice and affordable to live
- child care
I think that using your money to set up a way to solve those problems for future generations is a big benefit. Setting it up to keep family nearby is one way to do this, although obviously it wouldn't work for every family
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Read an interesting article this week (I forget where) about this topic. They suggested that most people think about this topic backwards.
Instead of trying to decide how to give people a huge amount of money when you die, focus on giving them a much, much smaller amount really early and let compounding growth do the heavy lifting for you.
Here's an example. Historical stock market growth rate has been a bit more than 7%/year in real terms. (10%+ including inflation.) The rule of 72 sows us that an investment at that growth rate will double about every decade.
Here's the progression of doubling based on an initial $1000 investment made on a grandkid's behalf on their day of birth.
$1000, $2000, $4000, $8000, $16,000, $32,000, $64,000, $128,000, $256,000, $512,000, and $1,024,000. So, they would have $64,000 at age 60.
That's better than a huge percentage of American families at that age.
But what if you invested $2000 on day 1 instead? Suddenly that retirement nest egg for your grandkid when they turn 60 is $128,000. That's a whopping big difference!
What if you gifted them with $8,000 on day 1? Now they're sitting on over half a million $ at age 60!
And, of course, $16,000 gets them to more than a million $ at age 60.
I think this makes a lot of sense. Unless you have a bunch of kids early who also have a bunch of kids early, it's the kind of thing that many mustachians could pull off. It also has the advantage of being a gift from someone that the kids know and, hopefully, love and respect.
You then teach them the financial knowledge and family values that would both enable and encourage them to pay it forward to their grand-kids.
I have 3 grandkids. 1 is in her early 20s, the two boys are 4 and 6. It's early enough that a small gift for the two youngest will really grow over time.
The older one would need a bit more to get her fund started.
We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)
We still have some research to do to make sure that wouldn't get in the way of financial aid calculations...
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We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)
If you hire them, they will have to pay taxes on the money. (I'm assuming you are in the u.s.) Whereas you can gift a fair amount of money tax free. For instance, you can certainly do 14K per giver per receiver per year. (i.e. 28k total per child per year) And I think that you can do more but it starts to eat into the amount of tax free inheritable assets you can leave. (Note, i'm not an attorney or accountant)
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Read an interesting article this week (I forget where) about this topic. They suggested that most people think about this topic backwards.
Instead of trying to decide how to give people a huge amount of money when you die, focus on giving them a much, much smaller amount really early and let compounding growth do the heavy lifting for you.
Here's an example. Historical stock market growth rate has been a bit more than 7%/year in real terms. (10%+ including inflation.) The rule of 72 sows us that an investment at that growth rate will double about every decade.
Here's the progression of doubling based on an initial $1000 investment made on a grandkid's behalf on their day of birth.
$1000, $2000, $4000, $8000, $16,000, $32,000, $64,000, $128,000, $256,000, $512,000, and $1,024,000. So, they would have $64,000 at age 60.
That's better than a huge percentage of American families at that age.
But what if you invested $2000 on day 1 instead? Suddenly that retirement nest egg for your grandkid when they turn 60 is $128,000. That's a whopping big difference!
What if you gifted them with $8,000 on day 1? Now they're sitting on over half a million $ at age 60!
And, of course, $16,000 gets them to more than a million $ at age 60.
I think this makes a lot of sense. Unless you have a bunch of kids early who also have a bunch of kids early, it's the kind of thing that many mustachians could pull off. It also has the advantage of being a gift from someone that the kids know and, hopefully, love and respect.
You then teach them the financial knowledge and family values that would both enable and encourage them to pay it forward to their grand-kids.
I have 3 grandkids. 1 is in her early 20s, the two boys are 4 and 6. It's early enough that a small gift for the two youngest will really grow over time.
The older one would need a bit more to get her fund started.
We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)
We still have some research to do to make sure that wouldn't get in the way of financial aid calculations...
I like the way you think.
Real estate can also be a good long term investment, which can help as a tax shelter. It also has the advantage of being less liquid, which help prevent impulse withdrawals.
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We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)
If you hire them, they will have to pay taxes on the money. (I'm assuming you are in the u.s.) Whereas you can gift a fair amount of money tax free. For instance, you can certainly do 14K per giver per receiver per year. (i.e. 28k total per child per year) And I think that you can do more but it starts to eat into the amount of tax free inheritable assets you can leave. (Note, i'm not an attorney or accountant)
Just pay them a low enough amount that they stay below a taxable level
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I've often thought about my "200 year plan". I even mapped out the next 200 years on a timeline. I put all my children, grandchildren, great-grandchildren, etc, based on average life expectancy and average age of parents at birth. The best outcome would be for my descendants 200 years from now thanking me for creating a stable inheritance for them.
I'm not sure if I'm impressed or concerned.
If the Bene Gesserit can't plan this stuff, what hope have we got?
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Great article that shows a little math on why a trust fund designed to benefit all future heirs doesn't really work, math-wise. Within a number of generations the family tree is so large that the share of assets is diluted down to practically nothing. It discussed a neat alternative idea though.
http://actionecon.com/building-generational-wealth/
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I read a very informative book on some of the techniques for doing such things earlier this year, thought I would drop in with a recommendation for anyone interested:
https://www.amazon.com/Wealth-Secrets-Affluent-Building-Protection/dp/047013979X
This is the MMM forum, so of course I'm not suggesting one buy this book on Amazon, use the library!
This book discusses financial planning tools, wealth preservation, and asset protection strategies tailored to affluent individuals. If you can overlook the occasional plug for the authors' firm's services sprinkled in, I found there was plenty of valuable material in it (who knew there were so many different kinds of trusts?!) A lot of it would be particularly actionable for anyone here who owns rental properties or otherwise wants to build a legal fortress for their assets in case of lawsuits. The chapter about trusts with "spendthrift clauses" is particularly topical given some of the comments upthread. YMMV, but I learned a lot reading it.
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If had enough money, this is what I would consider doing
- Buy a large chunk of land in a desirable location. i.e. one that is fairly near good jobs, etc. By large I mean in the 100's of acres.
- Build a house on it.
- Invite my parents, siblings to come live on the land, and build houses nearby
- Raise my kids
- When they get older, build a smallish house that they & any cousins can share during college, post college single years
- Build another community family center that had all of the common things you would want. i.e. a big room. a large kitchen, a pool table
- When the kids get married, build them houses nearby
- When my kids have kids, use that common area as a communal child care. Rotate responsibility so people are watching kids maybe 1 day every 2 work weeks. So no one has to do day care.
- Improve the land, build trails, a basketball court, tennis court, etc
- When the grandkids get older, move them into the young people's housing
- Attempt to set up a trust to perpetuate that cycle
Other thoughts
- Try to do as much house building with family labor as possible.
- Try to incentivize children having kids around ~24-27. Avoid the problem I now see of working professionals waiting until they are 30+ to consider kids, and only having 1 or 2. Also attempt to avoid the problem of teenage pregnancy
Basically, I would attempt to establish a family community, find a way to make the area as nice as possible, and try to incentivize people staying
The problem with this approach is the 50%+ divorce rate in America.
Unless the patriarch maintains ownership of everything, you will soon have complete strangers living on the property, when kids divorce and have to sell their house due to necessity.
Have seen this scenario over and over in rural midwest America.
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Thanks for all the ideas and suggestions. This forum is worth it's weight in gold!
I bought this book:
https://www.amazon.com/Family-Wealth-Keeping-Intellectual-Financial-Generations/dp/157660151X/ref=sr_1_1?s=books&ie=UTF8&qid=1495583925&sr=1-1
and the insights are fascinating. It is possible to retain wealth over multiple generations. Not easy, but possible and this book explains. Written by an attorney who spent his life tackling this problem. For just a few dollars, you can have the distilled essence of an attorney's life work. Best deal I've found this year.
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Thanks for all the ideas and suggestions. This forum is worth it's weight in gold!
I bought this book:
https://www.amazon.com/Family-Wealth-Keeping-Intellectual-Financial-Generations/dp/157660151X/ref=sr_1_1?s=books&ie=UTF8&qid=1495583925&sr=1-1
and the insights are fascinating. It is possible to retain wealth over multiple generations. Not easy, but possible and this book explains. Written by an attorney who spent his life tackling this problem. For just a few dollars, you can have the distilled essence of an attorney's life work. Best deal I've found this year.
This topic has been on my mind for a long time. Thank you very much for the book suggestion. I've read the first chapter so far and it's very interesting and inspiring. So far it's just my wife and I and our one daughter, but I imagine in time there will be other kids and grandkids, along with a sizable stash, and my goal is the same as the author's: preserve and the ability for every member of the family to purse their own individual happiness.
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I want to have my mummified corpse launched out of the solar system, where it can drift aimlessly through the galaxy for millions of years, long after the rest of humanity has perished and turned to dust.
If this was done today, it would cost somewhere in the neighborhood of 100 million dollars. Hopefully by the time I die it'll be a lot cheaper, and I'll be a lot richer.
But seriously, I don't know what I'll plan to do with my unconsumed assets. Most likely most of it will go towards some cause which is yet to be determined, with a smaller amount left to family.
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Nobody can waste money faster and more frivilously than family. If you want your legacy to endure, you need to set up a charitable trust which preserves and inflation-proofs the principle. If you do this right, your legacy will continue to benefit people for generations. Universities are often set up to manage this adequately as are some churches. The Gates Foundation manages this for many billionaire donors, particularly W. Buffett.
I wish I were surprised that only one post in 40 mentioned charity, but I'm not. :(
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Read an interesting article this week (I forget where) about this topic. They suggested that most people think about this topic backwards.
Instead of trying to decide how to give people a huge amount of money when you die, focus on giving them a much, much smaller amount really early and let compounding growth do the heavy lifting for you.
Here's an example. Historical stock market growth rate has been a bit more than 7%/year in real terms. (10%+ including inflation.) The rule of 72 sows us that an investment at that growth rate will double about every decade.
Here's the progression of doubling based on an initial $1000 investment made on a grandkid's behalf on their day of birth.
$1000, $2000, $4000, $8000, $16,000, $32,000, $64,000, $128,000, $256,000, $512,000, and $1,024,000. So, they would have $64,000 at age 60.
That's better than a huge percentage of American families at that age.
But what if you invested $2000 on day 1 instead? Suddenly that retirement nest egg for your grandkid when they turn 60 is $128,000. That's a whopping big difference!
What if you gifted them with $8,000 on day 1? Now they're sitting on over half a million $ at age 60!
And, of course, $16,000 gets them to more than a million $ at age 60.
I think this makes a lot of sense. Unless you have a bunch of kids early who also have a bunch of kids early, it's the kind of thing that many mustachians could pull off. It also has the advantage of being a gift from someone that the kids know and, hopefully, love and respect.
You then teach them the financial knowledge and family values that would both enable and encourage them to pay it forward to their grand-kids.
I have 3 grandkids. 1 is in her early 20s, the two boys are 4 and 6. It's early enough that a small gift for the two youngest will really grow over time.
The older one would need a bit more to get her fund started.
We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)
We still have some research to do to make sure that wouldn't get in the way of financial aid calculations...
This is exactly what my grandfather did. He was incredibly thrifty and talked about being thrifty. He also set up mini trusts for each grandchild of approximately $10k. Each one was in a different mutual fund, so performance varied. Some used it for school, some used it for their first car, some (like me) used it for their first house downpayment. I have a fair chunk left, though I don't know how other kids have managed.
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[/quote]
I wish I were surprised that only one post in 40 mentioned charity, but I'm not. :(
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The topic's title wasn't about charitable giving. If it had been I'm sure more would have discussed it.
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I wish I were surprised that only one post in 40 mentioned charity, but I'm not. :(
I think charitable giving becomes a concern after one's family is taken care of.
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I wish I were surprised that only one post in 40 mentioned charity, but I'm not. :(
If the assists are donated to charity, then for the purpose of the giver they have already been 'consumed'. Thus, they no longer figure into estate planning and are not relevant to this post.
Protostache: I'm glad that you enjoyed the link. I'm amazed at the wealth of knowledge in that book. I presume that all the information in that book was at some point previously billed out to clients at $250/hr (or more!), and hundreds of hours at that. For a fraction of that price, you can have the same advice. The *only* difference is that the clients could ask questions and you can't.
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semi-relevant to this thread, but I saw this a few days ago: http://copperbadge.tumblr.com/post/161277991091/the-angel-investor
An out gay man who cared deeply about the well-being of LGBT people, Mr. Weiland laid out meticulous plans in his will for distributing nearly $68 million among 11 organizations to make them sufficiently strong and nimble to respond to new crises and opportunities in the fight for LGBT rights. Ten of the beneficiaries received their money gradually over a decade, per Mr. Weiland’s instructions, to avoid overwhelming them.
LGBT advocates say the gift was a primary catalyst for a wave of progress for their cause: the repeal of the “don’t ask, don’t tell” policy for gay service members; the spread of anti-bullying initiatives and Gay-Straight Alliances in America’s schools; and, in 2015, the seismic Supreme Court ruling that made marriage equality the law of the land.
I'll certainly never have that much money, but it is certainly illustrative of how charitable contributions can make positive change, if you're going to have money left over at the end of your life.
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How about a giant marble monument and memorial, make sure it has a lot of tacky gold leaf too.
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I'd like to do what this guy did, but on a bit smaller scale.
https://mobile.nytimes.com/2017/01/05/nyregion/james-bond-of-philanthropy-gives-away-the-last-of-his-fortune.html
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Swordguy
This is exactly what I was thinking myself a while back.
Here is this old thread from Bogleheads in 2015.
I was surprised to learn that most people were leaning towards paying for college then taking a lumps sum at 40 years instead
https://www.bogleheads.org/forum/viewtopic.php?t=174802
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On the subject of only giving money to inheritors who would use it well, I'm reminded of a story (probably apocryphal, since I haven't been able to find it again) about a billionaire who promised each of his kids $40million when they had completed the following:
--graduated from college
--held a full-time job for 10 years
--been married to the same person for 10 years
--spent 2 years overseas
--spent 2 years volunteering for a charitable organization
(I don't remember the whole list, but it was along these lines)
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On the subject of only giving money to inheritors who would use it well, I'm reminded of a story (probably apocryphal, since I haven't been able to find it again) about a billionaire who promised each of his kids $40million when they had completed the following:
--graduated from college
--held a full-time job for 10 years
--been married to the same person for 10 years
--spent 2 years overseas
--spent 2 years volunteering for a charitable organization
(I don't remember the whole list, but it was along these lines)
OH, sweet! I just need to spend 2 years overseas! I've got more than double the other "years" categories.
Got enough FU money for THAT!
Where can I sign up?
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Thanks for all the ideas and suggestions. This forum is worth it's weight in gold!
I bought this book:
https://www.amazon.com/Family-Wealth-Keeping-Intellectual-Financial-Generations/dp/157660151X/ref=sr_1_1?s=books&ie=UTF8&qid=1495583925&sr=1-1
and the insights are fascinating. It is possible to retain wealth over multiple generations. Not easy, but possible and this book explains. Written by an attorney who spent his life tackling this problem. For just a few dollars, you can have the distilled essence of an attorney's life work. Best deal I've found this year.
This topic has been on my mind for a long time. Thank you very much for the book suggestion. I've read the first chapter so far and it's very interesting and inspiring. So far it's just my wife and I and our one daughter, but I imagine in time there will be other kids and grandkids, along with a sizable stash, and my goal is the same as the author's: preserve and the ability for every member of the family to purse their own individual happiness.
I've been thinking an awful lot about this book over the past few weeks. The lessons really apply to any family, any amount of financial wealth, and any amount of charitable giving the family wants to do.
Hughes' thesis is that every family has three types of capital: human, intellectual, and financial. The human capital is the people that make up the family. Adding new people, either through birth, adoption, marriage or other affinity adds to the human capital of the family. The intellectual capital of the family consists of everything that everyone "knows". Formal education and lived experiences add to the intellectual capital of the family. Financial capital, straightforwardly, is the combined financial net worth of the family.
In order to continue as a coherent unit for more than three generations a family must maintain and grow all three types of capital. Hughes argues that financial capital is merely a tool for maintaining and expanding the other two types and focusing solely on it is what causes the "shirtsleeves to shirtsleeves in three generations" phenomenon.
The first generation generates the initial family wealth. The second generation knows life without wealth and thus maintains it and does not take it for granted. The third generation takes advantage of the wealth and spends it all frivolously. Hughes argues that a family must cultivate an attitude within each generation that it's both a first and second generation simultaneously.
It's a fascinating book and I'm not doing it justice here, but I believe it reflects the attitude of this forum better than the title would suggest.
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I bought the book as well. I agree the title is misleading. It's much more holistic in its attitude about preserving wealth and developing a well-rounded family than its title would suggest.
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Great article that shows a little math on why a trust fund designed to benefit all future heirs doesn't really work, math-wise. Within a number of generations the family tree is so large that the share of assets is diluted down to practically nothing. It discussed a neat alternative idea though.
http://actionecon.com/building-generational-wealth/
I'm not sure I followed the math here. He assumes two children per couple, and a generation time of 25 years (which corresponds to an annual growth rate of 2.8%).* If we assume 5% real growth for a portfolio the doubling time for the trust would be about 14 years, so it seems like it, given enough money, it should be possible to set up a trust that would continue to provide about the same inflation adjusted benefit descendants for many generations.
Now the author also makes the (very valid) point that after a dozen or so generations the current generation will share only a small fraction of your DNA. Whether this influences your decision making will vary from person to person. People are obviously able to put a lot of emotional investment into others who share no direct genetic relationship with them (for example adopted children). OTOH, people who share no genetic relationship with you, have no memories of you, and who you'll never have the chance to interact with...
The final point that tax laws may change in the future in ways that are unfavorable to dynasty trusts is also well taken and something folks will need to be aware of.
*In America, excluding first generation immigrants, our fertility rate is now down to 1.79 children per woman and continuing to decline. Average age of the mother at first birth is up to 26.3 years, while average age of the mother at second birth is up above 28, and both numbers are continuing to increase. So two children per couple with an average generation time of 25 years is actually more pessimistic than the statistics would indicate. 27 years and 1.8 kids drops the annual growth rate of descendants from 2.8%/year to 2.2%/year, so a significant decrease even if current trends stopped tomorrow.
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Great article that shows a little math on why a trust fund designed to benefit all future heirs doesn't really work, math-wise. Within a number of generations the family tree is so large that the share of assets is diluted down to practically nothing. It discussed a neat alternative idea though.
http://actionecon.com/building-generational-wealth/
We recently completed our will and living trust* with our lawyer. We had a child this year, and were we to kick the bucket before he reaches 18 our money would go into a trust. He would get a dollar for dollar match on any income he earns through age 35. At 35 he gets the balance. This obviously divides into smaller pieces with each subsequent kid.
If he or his future siblings pursue a high paying job they can take advantage of TVM and get a higher match in earlier years. Conversely, if he wants to be a teacher and earn 40 grand per year, this affords him the opportunity to follow his dreams and still live and save comfortably with a larger payday at 35. What it doesn't allow him to do is nothing. At least until he reaches 35. At some point we felt the money shouldn't be controlled forever.
Assuming we live to a ripe old age it would be nice to set up a similar trust that matched payments for schooling or something to that effect. Only with the way things are going who knows if that will even be relevant. A neat idea I thought of was using the estate (or a portion of it) to match charitable dollars. So if Grandchild X is passionate about saving tigers in India or building wells in Africa, she can have her donations doubled every year within certain constraints.
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Been thinking about this as well over the last year. Up until my generation (in my family), there has been very little money to pass to the next generation. At least at this point we have settled on the idea that we will try to leave our money where it can have a large impact on someones quality of life. I am not convinced that place is with my kids, who will have many advantages in their lives. We may yet leave them a small inheritance.
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Been thinking about this as well over the last year. Up until my generation (in my family), there has been very little money to pass to the next generation. At least at this point we have settled on the idea that we will try to leave our money where it can have a large impact on someones quality of life. I am not convinced that place is with my kids, who will have many advantages in their lives. We may yet leave them a small inheritance.
It's interesting to think about. I presume our children will be about 50 or 55 by the time my wife and I die, and hopefully the kid(s) will be FI/RE well before that age. Maybe we will "leap-frog" and leave it all to our grandchildren so that they can be FI in their 30's...
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Swordguy
This is exactly what I was thinking myself a while back.
Here is this old thread from Bogleheads in 2015.
I was surprised to learn that most people were leaning towards paying for college then taking a lumps sum at 40 years instead
https://www.bogleheads.org/forum/viewtopic.php?t=174802
Wow, I read that Bogleheads thread. I'm struck sometimes at how different my mindset is from people with "real" money! Not a good or bad comment, by the way. Just different.
I calculated my college costs for undergrad and law school to be $55,000 in retail costs and $0 after all scholarships. Despite having worked delivering pizza and washing dishes for four years on top of obtaining all the scholarships to pay for college, my Dad asked me to pay back the $10,000 he gave me over four years in living money after I graduated college! That's a far cry from having a Dad have 200k "earmarked" for his children's education.
I have made my fortune as a entrepreneur and small business owner (law firm). It's different from the idea I got on that thread of trying to get hooked into a great job using the elite universities as a stepping stone. I was always jealous of those classmates!
Anyway, all the above is not meant as aspersions about what's good or bad. I just found the thread highly interesting and thought I'd share why.
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There is a book about maintaining wealth over generations "Family Fortunes" by Bill Bonner. The really big fortunes that have lasted generations have relied on a "family office". The family office manages investments, legal matters, tax matters, etc., but more importantly manages the family via a 'family constitution'. You have to build a culture that preserves wealth over generations.
A family office is unfortunately not cheap. They run about a 1 million a year in fees so are rarely used for fortunes less than 100 million. Without one, you are (probably) looking at the old saw 'shirtsleeves to shirtsleeves in three generations'.
I'm reading this book right now, and I'm finding it to be only mediocre. Did you like it a lot.
It's nice that a book has been written on this. However i'm not sure the authors are really experts in this topic, since they are first generation money, and spoke several times about things I would consider extravagant wastes, such as buying chateauxs in France
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FIREby35
That was a good tread indeed. I have somewhat changed my opinion on how much I *should* help my kids as well. I have two, I expect and suspect one will do exceptionally well in life , and the other one *maybe*. So I'm inclining to help the less *fortunate* one, but that comes with other dilemmas ....
Hope your Dad situation with money for college will *not* influence your outlook for your kids.
All folks on this site are *scrappers* , we scrape our way to fortunes somehow. Good to hear about your fortune !
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. . .That was a good tread indeed. I have somewhat changed my opinion on how much I *should* help my kids as well. I have two, I expect and suspect one will do exceptionally well in life , and the other one *maybe*. So I'm inclining to help the less *fortunate* one, but that comes with other dilemmas ....
Saw this and wanted to add my two cents. I am the "fortunate" child and my younger brother is the one who just can't seem to get it together despite trying really hard (He has fairly severe OCD that impacts his daily life). My parents help him out (paid off his mortgage a couple of years ago, give him their cars when they upgrade, etc); it generally does not bother me* and it makes their lives better because they aren't worrying about him.
So if helping the less fortunate child out helps you literally sleep better and have a happier day to day life - go for it! My parents are much more fun to be around now that they aren't constantly worrying about my brother's future.
*It does sometimes irk me when I see him spending money just because he has it - but I think that is also jealousy on my part.
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There was an entire thread about "favoritism" toward siblings who get more from parents but got less from god.** I have 9 siblings and I fully admit there was a time when I felt a little irked by my siblings getting so much. They always got things when they needed "bailing out" - usually not literally but sometimes actually bailed out of jail. I never got anything because I never faced an emergency where I asked for help! Ha. Well, in time I understand what happened and I'm glad I got more from god than my parents. It was/is the better lot in life.
My conclusion from the thread is that feeling jealousy but eventually releasing that jealousy by concluding you have the better life is a pattern of thought toward maturity that all in this position experience. Of course, not everyone makes it to the end of the thought pattern and arrives at acceptance and releasing the jealousy. So it's something to keep in mind as a parent.
**Forgive me for using "god" as a ham-handed term to describe all our seemingly innate talents that are wildly variable from person to person.
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Mr. Green; I've read the studies as well, but I'm not convinced that it is a law of nature. I tend to believe that now that people are aware of these facts, they can steer against them. For example, since I'm aware of the real possibility of them wasting all the money,
I want to teach my offspring the value of money so that they don't piss it away.
I want my children to know the value of money also, we lived frugally while raising them, but that doesn't seem to be enough. My son 23, in college but lives very frugally. My daughter likes to spend money, period! I think she realizes this and her fix is to get a higher paying job. When she finished college she got a good job, with great benefits immediately out of college. However, after about 3 years the company merged with another and things made a turn for the worse, benefits changed, many people left, she saw where it was going. She made the decision to became a dentist. Now she's going to school for that.
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Thus, I posit the question in the header: What is the best way to pass along assets to the next generation? I'm under no illusions that I'll ever be a billionaire or a hundred millionaire. I'm at six zeros now in my mid 40's and with luck, I might have another zero before I die, but a seventh zero is not important to me.
For me, I'm more interested in the best/most efficient use of the assets I've accumulated. An integral part of this is to teach my offspring about personal finance and instill the values necessary to manage and grow large amounts of money.
I don't plan on having children, so all of my money will be left to charity and political causes. Even if I did have children, my answer wouldn't change much. They would be raised with a million advantages, and can handle their own finances.
Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money. The same amount could save countless people from malaria or unsafe drinking water, or help move the country to a more equal society. Or pay for a buttload of disco balls and glitter sticks for a giant, international dance party for, uh... for peace. Yeah. That's it.
Assuming we live to a ripe old age it would be nice to set up a similar trust that matched payments for schooling or something to that effect. Only with the way things are going who knows if that will even be relevant. A neat idea I thought of was using the estate (or a portion of it) to match charitable dollars. So if Grandchild X is passionate about saving tigers in India or building wells in Africa, she can have her donations doubled every year within certain constraints.
I love the matched charity idea!
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Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money.
Man, as I'm in the grind of it working toward FI/RE right now at age 32, I REALLY wish my parents had a few extra hundreds of thousands of dollars to get me out of this damn cubicle faster.
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Giving hundreds of thousands of dollars to one person so they don't need to work, or can buy a bigger house, isn't the best or most efficient use of that money.
Man, as I'm in the grind of it working toward FI/RE right now at age 32, I REALLY wish my parents had a few extra hundreds of thousands of dollars to get me out of this damn cubicle faster.
Sure, but you're being selfish, not efficient. ;)
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Sure, but you're being selfish, not efficient. ;)
I'm being efficient with my time, stress level, and overall life satisfaction...
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Sure, but you're being selfish, not efficient. ;)
I'm being efficient with my time, stress level, and overall life satisfaction...
I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.
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Sure, but you're being selfish, not efficient. ;)
I'm being efficient with my time, stress level, and overall life satisfaction...
I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.
By that logic, every dollar you spend on yourself that is above poverty level is inefficient/selfish because instead of simply providing you luxury, it could be buying vaccines for kids in Cambodia.
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I've thought about this a lot as well. I think the best option is, as mentioned above, to instill those values of non-wastefulness and frugality in your offspring so they're not inclined to waste the family fortune. But what about a generation or two after that, what if one of them is a total dipshit and pisses it all away? I think that is where trusts come in.
An example would be to start an endowment that spits out a certain amount each year, principal can't be touched, and up until age 30 the money can only be used for education or purchase of a primary or investment residence (cost not to exceed 150% of the median home value in the area)... some additional restrictions to prevent stupidity.
Replying to this post because it played into my comment, without having read everything below yet. Apologies if I steer away from the conversation.
I ran across this plan a few weeks ago and it impressed me with the intent and the usage of doubling periods to fund educations and retirements. http://actionecon.com/building-generational-wealth/
It doesn't contain much of a safety net if the receiving ancestor doesn't handle the money wisely, but I guess everyone's taxes along the way help soften the blow. I really can't imagine being unbelievably rich, and after reading "The Millionaire Next Door" I'm pretty cautious about saving money for my kids (if I have any). I like to think that I'd be a philanthropist and engage my time in the causes that my money would go towards. I know I would travel a lot more than I do now, which makes me think that I want to have enough saved in my 'stach to fund that once I retire. Other than that I see huge net worths as "mo' money mo' problems."
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Sure, but you're being selfish, not efficient. ;)
I'm being efficient with my time, stress level, and overall life satisfaction...
I'm talking about being efficient with the use of money from a reasonably objective observer's perspective. $300k could 1) allow one person to retire a little more obscenely early than otherwise or 2) save thousands of lives. To choose #1 is selfish, no matter how efficiently you personally live.
By that logic, every dollar you spend on yourself that is above poverty level is inefficient because instead of simply providing you luxury, it could be buying vaccines for kids in Cambodia.
And it is.
Guess it's a good thing I spend about the poverty level on myself. :P
I'm not perfect, or perfectly efficient, and I don't expect anyone else to be. We're human. We're selfish. We're inefficient. But the question was posed: what's the best, most efficient use of excess assets. I was addressing that.