Stewarding Generational Wealth


“Shirtsleeves to Shirtsleeves in Three Generations.” This proverb tells a simple story of generational wealth. The first generation builds the foundation, the second generation turns it into a fortune, and the third generation squanders the wealth they grew up in.

  • “Rice paddies to rice paddies in three generations” – Japanese Proverb
  • “The father buys, the son builds, the grandchild sells, and his son begs” – Scottish Proverb
  • “Wealth never survives three generations” – Chinese Proverb
  • “Clogs to clogs in three generations” – Irish Proverb

My favorite version of this sentiment comes from the character of Jack Donaghy in the show 30 Rock:

“Diversity is the engine that drives this country. We are an immigrant nation! The first generation works their fingers to the bone making things, the next generation goes to college and innovates new ideas, the third generation… snowboards and takes improv classes.”

Hilarious, and the fact that they wrote this into a joke on a primetime comedy show says that enough people believe and see this reality to find it funny.

Assuming you have (or are building) wealth, how do you make sure your kids don’t squander it?

How do you avoid this?

2 Ways to Preserve Generational Wealth

1. Stories & Values

If you train all your children & inheritors in your values, you will preserve them (assuming your values are what built your wealth).

Here’s where I see this go wrong. People train their kids in what the person’s values are now and not what helped them build wealth.

I know many people whose parents are wealthy but they don’t know sh*t about money. Their parents just taught them to “be a good person” and their kids are, but are in a disgusting amount of debt with zero plan of emerging.

In my opinion, the best way to preserve your values is in a family story. You can’t value everything, otherwise, you value nothing.

A family story says what challenges you have overcome and what kind of person (and family) you have become in the process.

Maybe it’s sticking it out when everyone else gave up.

Maybe it’s looking for a breakout opportunity in an otherwise dead industry.

Whatever it is, begin crafting your story now even if you don’t have wealth to speak of.

If your story is true, then it needs to be true now when you’re poor or else it won’t be true when you’re rich.

2. Trust Funds

If you don’t like them, you call them trust funds.

If you do like them, you just call it a trust.

Trusts are a way to shield your wealth from taxes as you pass it onto your kids, as well as shield it from your heirs who may want more than what’s good for them.

Trusts are the most consistent way families preserve their wealth over generations.

They can be given particular rules like “heirs get a certain distribution once they’re 18, or 25, or whatever, and X amount/year after that.”

Or maybe “2/3 of descendants 16 and over have to agree on a new investment with the family money.”

Your trust, your rules. Lawyer up and ask them about it.

A Real Life Example That You’ll Both Love & Hate

I happen to know about one political dynasty family you’ve definitely heard of. Their great-something-grandfather created a bunch of wealth. It sits behind a trust now so the hundred or so descendants don’t get their hands on it.

In power-hungry families, you bet there is infighting. It’s not just a medieval thing—they made a whole HBO series about it.

How do you prevent that? By training them that they’re on one team (à la your shared story) and by taking away the incentive to compete for inheritance by making it a rules-based distributed trust.

The aforementioned family has a voting system. The entire family (including cousins and such) votes on major decisions like how the trust is invested, and also even every other individual’s major decisions like marriages.

They even voted someone out of the family because they married someone of a different ethnicity (still the same race even).

Yeah, I didn’t say they were the good guys. But their system is effective for its own goals.

Last Word on Generational Wealth

There are two kinds of trusts. One is the trust we talked about—a financial vehicle. The other is the kind you create through story—the word we normally think of when we hear trust.

Odds are, you need both. A rules-based system is meant to disincentivize discord, but it cannot ultimately replace a fundamental lack of trust. Wealth isn’t built without it.

RELATED: Multi-Generational Wealth | Managing Mortgages


If you have money, look into trusts.

If you don’t, work on your story and make it one worth living for.

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