Lets say you come into a lottery windfall, maybe 10 million dollars.
You don’t really want anything for yourself, but you want to set things up so your grandchildren’s grandchildren will have a leg up in life (enough so that all ~50 of your great great grandchildren have enough for a home down payment, no student loans, etc for when they start their lives out).
What would be the best way to invest and manage the money to ensure this happens?
On another forum, someone was wondering if real estate was the best way to do this. I would assume for 10 million dollars you could buy enough property outright that has close to a million dollars a year in revenue (assuming you use the funds to pay off the mortgages).
Would just leaving the money in index funds be better? investing in land (farmland, commercial land, etc)?
Also how would you set things up so the money isn’t squandered by the 3rd generation. Supposedly 90% of family fortunes are gone by the 3rd generation. Do you mandate that only 1-2% can be pulled out a year and the rest of the money has to be kept in the fund?
Don’t focus on what to do with the principal: focus on what you spend on. Raising your kids right is the best bet for your great-grandkids’ futures. Raise them right enough and the money may get spent but it won’t be wasted.
This is all theoretical (I don’t have kids or a lottery ticket), I’m curious how a family would actually invest the money so that 3, 4, 5+ generations down the line the kids can still have a leg up in life.
Also I don’t think parenting has too much of a role in how kids turn out. A lot of that is genetics, peer groups, luck, etc.
You can set up a trust fund to manage the money according to your wishes. This fund and your wishes can live way beyond your demise.
It is typically up to the fund manager and trustees to decide on investments and disbursements, so choose them wisely. My guess is the best investment would be to diversify, since no prediction is much good for a long time. Conversely, you could instruct the fund to “always invest in Studebaker stock” if you wish, which would be pretty stupid if longevity is your goal.
I don’t have a lottery ticket either, but I am in the middle of trying to do some estate planning with my wife (not planning on dying anytime soon either), so this topic is of considerable interest for me. We’re doing the paperwork to get a trust set up. Real estate seems to generally require a lot more active management than I think I want to be involved in, or necessarily want subsequent generations to have to be involved in. Passive investing seems like the easiest strategy to implement.
IANAL but I think the rule against perpetuities prevents you from preventing subsequent generations from taking control of the money. And I don’t think investing the ten million in real estate will the million a year you suggested. My preference would be index funds.
This is an issue I am faced with. I have no offspring nor wife. But I have siblings who do have families. I would like to help those generations. But I’m going with Nava. You have to raise children, or have recipients, who recognize the opportunity an inheritance provides. I am not convinced my nephews do, and am loath to bequest them anything.
But that is an aside. My take on the OP is with Nava.
In my case it’s not theoretical. It’s based on knowing multiple families who at one point (late 19th-early 20th century) chose to invest money into making sure that all of their children would get a similar level of education/training, that all of their children would be capable of making a living regardless of birth position and gender (that is, families which made the choice to teach to their children that gender, birth position or profession weren’t determinant of a person’s value, but having a profession was), vs others which didn’t make that choice. Both groups of families started on similar economic positions; descendants of the first group now give orders to those of the second.
Genetics and peer groups have an amount of randomness, but can be controlled to a point. Choosing your kid’s school is in great part about choosing which parents do you want to have as your peers, and which kids do you want your children to have as their peers. For example, I would be happy to send my kids if I had them to an “elitist” school as in one which teaches people to be their best, but not to an excluding school - not to one in which people of different backgrounds and abilities weren’t accepted. Because I think that being your best is important, but that it is also important to realize that different people have different bests, and that this is good.
I don’t know. Again, I don’t see parents having much influence on a child’s outcome. Parenting of identical twins in different families vs parenting of adopted vs biological siblings within the same family leads me to believe that parents have a minor role in how kids turn out.
You can fuck a kid up, don’t get me wrong. Abuse them, neglect them, mistreat them, etc. and they’ll have poor outcomes. But actually instilling positive values, I don’t know if that is something parents are able to do.
I thought you could set up an estate and mandate that only a set amount can be withdrawn each year. Is that not legal? Can John Rockefeller set up an estate in the 1920s, mandate that only 2% is withdrawn a year and ensure that that estate still follows that rule into the 22nd century? Or can his kids or grandkids just tear up the agreement after John Rockefeller dies and blow through $200 billion in ten years and be broke by the time the great grandkids come along? My impression is that of the great fortunes built in the 19th century, a lot are still there into the 4th and 5th generation.
Kate Middleton might be a useful example; either her great or straight grandparents put their considerable wealth into a trust fund designated to be specifically for the education of future generations of the immediate family. That way you’re guaranteed a social leg up regardless of financial frailties down the blood line.
Without that, on her fathers airline pilots salary, she was all about state schools and uni if she worked hard.
Safe investements I say (blind trust, perhaps), and ultimately invest in education/social links. One or two in each generation may be fuck ups but the odds are good.
Sure, many of those “great fortunes built in the 19th century” are still around, but they were really big fortunes. You’re talking about “only” ten million bucks, but also want to leave enough that your great great grandchildren have enough for a down payment. That seems unlikely, given how much the money will get diluted over generations.
Will it though? Assume you have ten million and because only a little bit (maybe 1%) is withdrawn each year the fortune still grows faster than inflation.
If you adjust for inflation and assume due to a 1% rate, the fortune is worth (inflation adjusted) 30 million in a century, that is ample to help out 50 great great grandkids as 1% a year is still 6k a year inflation adjusted which would help pay off debt.
Collecting rent is the greatest thing ever. You are getting paid for the passage of time. What could be better? (That is rhetorical, by the way. I can think of plenty… )
I’m not lawyer either but I thought the law only limits what conditions you can attach on property you were passing on. So you can’t, for example, leave your house to your oldest child with the proviso that they have to pass it on to their oldest child when they die. Once you give the house to them, it’s their property and no longer yours to control.
But a trust works differently. Your heirs don’t own the assets of the trust. So you can say that your grandchildren will each receive $200,000 on their 21st birthday and their children and grandchildren will receive the same sum on their birthday. Your grandchildren can’t argue that they’re entitled to take control of the entire amount that’s in the trust.
The rule against perpetuities, already mentioned, prevents you from setting up a trust which endures indefinitely. There are some exceptions, like charitable trusts, which can continue for ever (or until the money runs out, at any rate) but in general at some point all the property/assets in a trust have to come into the control of the beneficiaries. Different versions of the rule apply in different jurisdictions, but in general your trust will have to wind up within about 80 years of your death, tops. If you set it up so that it could exceed the maximum permitted period, it’s void right from the outset, so trust lawyers are generally careful to draft trust documents so that, in all eventualities, the trust property must vest in the beneficiaries within (and sometimes well within) the maximum permitted period.
We set up a trust with specific instructions on how it would be doled out to our kids or used for college. Those clauses never got used since we managed to survive until they were beyond the age where we didn’t want to distribute everything. So specifying that some of the money must be used for college works well, and any trust attorney can give the right language, and also talk about the perpetuities issue. We had phased payouts so that the kids couldn’t spend everything before they were 21, for instance.
You also need to decide how to allocate money across hypothetical grandchildren. Does each child get an equal share to be split among his or her children or does each grandchild get an equal share?
When you are talking about that much money over such a long time I think diversification is the most important thing, with what things get bought depending on the level of risk you want, which might be fairly high here. If you love real estate you can buy into REITs. Index funds are fine for some of it but you might want some international exposure.
And definitely check out the tax implications.
At the risk of a highjack, our town has several high schools funded equally. One is far better in test scores than the others - and its physical plant is far from the best. The difference is parental involvement, up to pressure. I’ve seen smart kids lag not because of abuse but because the parents put no emphasis on school and learning.
A kid with supportive parents is going to do better on the average than one with intellectually absent parents.
Genetics does count also, but not 100%.