One of my goals in life is to create generational wealth and pass that down to my kids. In my two previous posts, I discussed why we chose to homeschool our kids giving them a head start in life, and how we set up our kids for success by hiring them at an early age and help them start investing early to compound towards a wealthy retirement. In this post, I'll cover what we did to establish them for success for everything in between during their adulthood.
Gross 10 Percent
I should note neither my wife nor I are religious, though we did both grow up in religious households where our parents are Buddhists. That said, I once came across a story about how the Morman Church, specifically the Church of Jesus Christ of Latter-day Saints, had accummulated billions in wealth. As of 2023, the church's recorded net worth was reported to be a whopping $265 Billion dollars. That's insane.
As I understood it, the way they accumulated this wealth was by having each member of the church contribute 10% of their annual income and made several investments that helped balloon their wealth to this point. While we aren't religious, this gave me the idea that we could replicate a similar system by establishing a family trust where every family member would commit to contributing 10% of their gross annual income to pay it forward towards the trust.
Establishing a Family Trust
Both my wife and I come from a rather insanely large family and attempting to get all family members involved in establishing a trust simply wouldn't make sense. Instead, we committed to creating one starting with just us and my brother.
The idea would be, we would all contribute 10% of our gross annual earnings towards this trust and our kids would continue this commitment when they become working adults. Should they choose not to participate, they would simply be cut off from the benefits the trust offers.
There were several rules on how all of this would work that I had to come up with, and figure out legally how to structure this in such a way that the trust funds couldn't be abused and could only be used for specific purposes.
Trust Rules
I won't cover everything we did or name every rule we created for our family trust but I did want to highlight at a high level some of the core rules that I think would be helpful to mention.
First, trust funds could only be used for specific expenses. For example, we made a rule that the trust will help cover any and all education related expenses. This could range from anything like formal college costs (minus scholarships and grants) to books, online courses, learning materials, and so on.
While a person must still qualify and be able to pay the monthly mortgage amount, as a one-time deal, the trust will help fund a standard 20% down payment towards their first property. This could be a primary home or an investment property. The trust will also fund all quality of life expenses. This could be medical, dental, or vision related, or it could be childcare, therapy, or something else that is greatly impacts or impairs your life.
Second, equally as important, ground rules for what the trust will not fund. Things like graduations, weddings, and honeymoons are not part of the deal. There are also rules established for ways you could lose access to the trust and situational scenarios where depending on what happened, there would be an appeals process. The trust also has rules around not simply giving handouts but there are potential assistance in specific hardship scenarios.
While there is more to it than what is written here, its also important to note there is an entire section on how the trust would continue to grow financially beyond the 10 percent contributions from family members and what needs to happen when in a few generations the family tree grows too big for the trust to continue to function in the same capacity. Or who will manage the trust or be assigned as board members.
The Overall Purpose
In the early stages, our kids would have an early head start, which then also directly contributes towards them building their retirement funds to be set later in life, the trust was designed specifically to handle the most expensive parts of adulthood between 18 to 60, such that it allows for them to not struggle as much to get ahead, without impeding them from still needing to earn and live their lives. The trust also acts as a safety net allowing them to take more risks when needed. There's a lot that goes into all of this, but ultimately if I did everything right, by the time I pass, this system I've created should ensure we succeed in creating generational wealth.
