Let’s just say you have a couple million dollars. You want to come up with a way to help your kids, grandkids, and even great-grandkids benefit. What are some ways to do it?
I thought of these:
College scholarship fund: A fund to help pay for college administered by the designee. So it could be full scholarships or a set amount. This way your heirs would have just one less burden.
Vacation property: Lets say a family trust would own and manage a property in a popular vacation area. This could be say a condo on the beach or at a lake or maybe a cabin in Colorado. The advantage here is that vacations are expensive. A property that the heirs can use for free can be a great benefit.
First home loan gift: This could be a set amount designated for each heir provided by the family designee, at the point that heir buys their first home and designed to be that homes full or partial down payment. Say for example, $20,000 per person. This helps them get set up in life.
What do you think of these? Notice none of them will set anyone up for life but would give them a head start or boost.
I think a college scholarship fund would be the gift that keeps on giving, and gives the most by opening the door to more employment options for your heirs. If you had a couple million dollars invested in a mix of stocks and bonds, it could deliver $40K in usable funds in the first year, while also growing itself (and thus producing more per year in subsequent years to keep up with inflation and an increasing number of heirs). Your heirs wouldn’t use it every year - only when they’re attending college. So the money could really accumulate while they’re growing up, and allow them to attend just about any school they could get into. In an ideal case, your heirs might be inspired to contribute to the fund themselves.
A vacation property locks them into always having a vacation at that property. Some people seem to like that, but it ain’t for everyone. And while you maybe have two or three kids who can cooperate to decide who gets to use it on which dates, the sharing becomes more difficult when you have 27 adult great-grand kids, each of whom wants to bring their family to the vacation property.
First home loan gift? I think if you buy them a college education they’ll be well-suited to producing their own downpayment (as well as affording bigger monthly payments for a better house).
I would expand this to college scholarship fund OR trade school OR other accredited job training program, and not limit it to just the young folks. This would allow descendants who wanted to do “practical” things, learn a trade, or change professions later in life to do so without incurring debt. As someone whose profession has been eliminated not once but twice through advancing technology and societal changes I sure could have used something like this in my life.
Well, yeah - IF they want to vacation in that place, if that’s the sort of vacation they want (the last decade or so I have really enjoyed a vacation at home rather than going somewhere else), etc. Also, there are travel costs if they don’t live nearby. I mean, I’d love a vacation in Colorado but I don’t leave anywhere near Colorado. I’m thousands of miles from any ocean and while a beach front condo sounds great there’s the hassle of getting time off work and traveling to that place. I have a nephew who’s idea of a vacation is going someplace new - he’s been to Machu Piccu, for example, and about two dozen other countries at this point, I think the notion of vacationing only in one place is not his idea of a good time. He’ll do it to spend time with his parents and sister, but on his own or with his partner it’s always off to somewhere new.
It’s not a terrible idea, but perhaps not as useful as it first appears.
I think that’s a grand idea. Stand-alone single-family homes, or do you include condos? (I’d include condos).
Yeah, but a lot of lucrative professions don’t come with huge incomes at the start and a downpayment boost could be of big help to someone, say, going to medical school. Sure, doctors (as an example) make a lot of money down the road but initially they make a pittance, plus often have enormous loans costs and expenses.
Also, as a personal opinion, I think we as a society to get away from the “bigger is always better” meme when it comes to personal housing. I think there’s an argument for only buying as much house as you actually need then finding other investments for any “extra” money left over, but that’s a bit of a tangent.
Dont forget that Vaca property could bring income.
Many that cost far less than a couple million are easily rented at $2000/wk all summer.
Make the property or properties replenish a college fund, perhaps with any excess funneled to a fund to purchase more properties and you’ve got a plan.
If the choice is between “helping them buy a house” and “not helping them” then I’d agree with you, but I think we’re talking about the difference between "helping them buy a house and “helping them get an education.”
More money can buy a bigger house, but it doesn’t have to. Instead, it can buy a nicer house (build quality, architecture, fixtures, landscaping, age, etc.) in a better location (lower crime, shorter commute, better school district, etc.).
A free house can be a huge advantage in life. But it’s a lot more difficult to keep a house in the family across generations than a fund earmarked for education. A house can be sold, even if you split the ownership across multiple children they can still get together and cash it all in, or just end up fighting with each other over the property and it never provides an advantage to anyone.
Don’t try to guess too specifically what the future will hold. A college fund, for instance, doesn’t make too much sense if the U.S. adopts free tuition for all. A vacation house is really more of a liability than an asset. The cost to maintain it generally exceeds the rent it will generate. it also faces its own risks on generational terms. What if your lovely vacation spot is on the Salton Sea? Or you pick a ski chalet but global warming eliminates the snowfall?
So, my general suggestion is: just leave them as much money as you can. It turns out that being rich is its own advantage. I know, that’s not a very fun suggestion.
My creative suggestion is to leave them a giant family foundation with a self-perpetuating board of directors. Your family can’t just take money from the foundation directly but it can benefit indirectly. First. give the foundation the family name so everyone with your family gets some reflected glow when the foundation does good things. “The Urbanredneck Family Foundation” has a nice ring to it. Second, appoint family members to the board of directors. Third, make sure that the board has the power to select their replacements (hint - they should probably pick their descendants). This way, the family members’s status as directors ensures they always have a respectable place in the community. Third, empower the board to give donations to an unlimited range of charitable causes. If you hem them in too much with the charitable intent, say limiting them
to AIDS treatment, the foundation will lose its luster if an HIV vaccine cures the disease. Flexibility means that when a family member moves to a new neighborhood, the foundation can pave your descendant’s way into local polite society by donating to the local school (public or private, as your descendant sees fit) or by building new dog parks or what have you. This source of funds means your descendants will get regular invitations to all the big charitable social events, which means they will always have the opportunity to network with rich people. This is a massive advantage in any economy and any line of work. Finally, the honest but hard-to-employ, like perhaps the art history majors, can even get some paying work from the foundation. The board has to be careful in doling out these jobs to relatives. The board can’t pay more than is reasonable and the jobs must involve real work, otherwise the board would be violating its fiduciary duties, but the foundation can be a source of flexible work for one or two family members each generation who just need a leg up. The foundation can even create other entities with different names (The Cares About the World Project") that obscures on your descendants’ resumes that it was just a patronage job.
The tax exemption for a charitable foundation means it is much easier to invest and manage a charity’s portfolio to last generations than to invest regular assets with the same aim.
Aren’t gifts to help in house down payments a problem for the loaning company?
I remember when we got a loan for my house (in 2013), they wanted to see 3 months of our bank account transactions and we had to give reasons any time we received money. We had to explain such things like why my parents had given my wife a $100 check for her birthday.
I think mainly they want to make sure it’s not a loan you have to pay back. They may also be concerned that your income is overstated and you’re depending on assistance from your family.
If you have any possible need for the money for yourself, Roth IRA or Roth conversion of IRA is good vehicle to have long term investment accumulate income tax free, and the Roth will pass tax free to heirs.
Once you put money in 529 Educational Fund or in foundation you can’t get to it if you need it for yourself. Also, Roth nice if future tax rates are higher or future you is in higher bracket (or both).
Vacation spot would be the last one I’d pick. The reason so many people hate timeshares is because they end up not using them. I wouldn’t want my offspring to feel any pressure to go to Grampa Ash’s beach-house for the Nth time. Also, accommodations are not necessarily the most expensive part of a vacation. I’d rather have cold-hard cash to be honest.
Intergenerational trust funds - in my opinion enough to make sure they won’t end up starving on the street, but not enough to live comfortably without a job - that allows people to pursue their passion - work in low paying fields (like for non-profits or teaching or art) - or pay down student loans, go on vacation once a year, or help kick start a mortgage. Not enough to raise a family on. Well administered - what used to be considered a “competence.”
However, the problem with multi-intergenerational wealth is the exponential nature of your descendants. For instance I have a friend whose great grandfather did the vacation thing - its a compound - but now there are far too many descendants - and spread all over the place. Great grandchildren (and great great grandchildren) who have no desire to use it want to be bought out, but there isn’t any way to do that that doesn’t involve selling off parts.
Similar things happen with education trusts or any other scheme - when you have two kids to send to college, its doable - when those two kids give your four grandchildren - its doable - when your trust is working on 32 or 64 descendants - thats a lot of money.
A spread of properties in fairly boring locations that are easy on the upkeep.
Tedious but our own pays back at least 6% after tax year after year and even in a slow-ish housing market has put on about another 3-4% a year in value.
Like I say, boring but very, very safe and it can either just be income or some form of trust that pays out to your descendants or you can set up some sort of system where your family gets privileged rates and access to the rental properties.
For young people (especially in the UK) getting on the housing ladder is a nightmare so such a set-up might be better appreciated than a holiday home (which requires a certain amount of discretionary spend to even make use of it)
I kind of suspect in order to have that sort of generational wealth, you have to have something like a major ownership stake in some kind of money generating enterprise above and beyond mere investment income.
I imagine absent that, what I’d do is something along the lines of funding each of them some kind of trust that they’d be eligible for once they graduated college/trade school/apprenticeship after some age like 21. This would be funded out of the earnings of the original wealth, and would have a cap- like each person gets a max of $5000 deposited or something like that- if investments were good, they may have that by the time they’re 1, or if it’s really terrible, it might take until 10. Once that’s there, it’ll be managed for the next however many years, until the kid hits 21 and it’s theirs.
Of course, you’d want to adjust that seed amount for inflation, but the beauty would be that each kid was literally given the same exact amount from the original trust, and from there, it’s just random chance.
If growth rates are 5-7% a year, that means your nest egg should double every 10-15 years. If you aren’t pulling a lot out, the money should last for a long time. Keep in mind college isn’t ‘that’ expensive. Right now its what, 10k a year in tuition in state right now? It’ll grow in time, but thats not going to deplete a multi million dollar estate, paying 10k or so for 4 years for 4 grandkids. Even if you throw in living expenses in college, 4 grandkids may take up 20k a year (inflation adjsuted) for living expenses and tuition. Thats 320k for an entire generation of grandchildren which again if your money is doubling every 10-15 years isn’t a big deal.
Also people don’t have ‘that’ many kids nowadays. The norm is about 4 grandkids, 16 great-great-grandkids. Its only after that that the # of kids grows quite a bit. 16 to 32 to 64.
It seems to me that the best way to help people in the far-ish future is just to give them cash. They can do what they want with it.
Encumbering the gift with requirements like only using it for college tuition or a house downpayment or whatever just reduces the utility. Some people would rather use the money to start a business, or adopt a kid, or pay for medical care. This is just the basic “central planning can’t beat information on the ground” problem of making decisions for someone else.
Sure, some will just blow it on stupid stuff, but I’m unconvinced that you have a lot of power to affect that from beyond the grave. Someone with no ambition who gets a free college tuition is likely just going to waste their college attendance as well (some good examples of this in the news right now). The best solution to this problem seems to be to just give the money later. Plenty of us are pretty dumb with money at 18 or 25 and a windfall at that age could legitimately be wasted and have a negative effect. But if you’re not a responsible adult at 35, I’m not convinced that a windfall is going to make much of a difference.
This is one of those folk-definitions that just won’t die. The fact that something has upkeep costs doesn’t make it a liability. Lots of assets have upkeep costs greater than the amount of income they generate. Assets are things that are worth something, and a vacation property is certainly worth something. They are bought and sold. Rarely given away.
Presumably, if you leave your descendants a vacation property, there’s either a way for them to agree to sell it, for them to withdraw from paying for its upkeep and using it, or there’s a pot of money to maintain it, and they don’t have to pay for it.
In general, I agree that a vacation property is a bad thing to leave to future generations in terms of investment efficiency. The risks you mention are real. But if you want to invest in family togetherness, it’s not bad. All the people I know with “family” vacation properties that were inherited take semi-regular extended family vacations together!
Most examples of intergenerational wealth break down primarily to two things, land and expensive education ( which also promotes marriage to others with the same means)