As baby boomers head deeper into retirement, financial experts say we are on the verge of a “great wealth transfer.” By 2048, approximately $105 trillion in assets will be transferred to heirs as the older generation passes away, according to estimates from Cerulli Associates.
Not everyone will get a piece of that pie, though. More than half of that money will flow from high-net-worth and ultra-high-net-worth individuals to their beneficiaries. Those who are in the bottom 50% of the country, income-wise, only inherit an average of $9,700, according to 2020 data from the Federal Reserve.
Maybe you’d like to change that for your heirs. In that case, it’s time to think about building generational wealth.
“It goes back to the American Dream,” says Matt Fleissig, CEO of Pathstone, a financial firm with offices in 14 states and Washington D.C. “People are drawn to create success and financial freedom for themselves and their children.”
Generational wealth means having enough money to leave an inheritance that is large enough to make a difference in the lives of children.
“I definitely do not think it’s only for the ultra wealthy,” says Jackie Prideaux, senior lead advisor with financial firm Brighton Jones in Seattle.
Even those with fewer resources can create a modest legacy to help their children. “It’s about giving them a head start and more choices and more freedom,” according to Prideaux.
Here’s how to create wealth that will transcend generations.
Get Out of Debt and Build Savings
You can’t create wealth for your children without first creating wealth for yourself.
“You have to get a grip on your cash flow first,” says Zach Gering, managing director of Wealthspire Advisors in New York City. Once that happens, you can then “thread a needle,” as Gering calls it, to give your children a financial head start.
Eliminating high-interest debt and building emergency savings are the first steps to getting your financial house in order. Once you have a firm foundation, you can begin to build wealth by investing.
[Read: 7 Steps to Paying Off Debt]
Diversify Your Assets
Income alone generally won’t be enough to create generational wealth. Instead, you’ll need to invest in assets such as real estate, stocks or a business.
“People are very comfortable hiding out in an asset that tracks inflation closely,” Gering says.
However, those sorts of safe investments — such as Treasury bonds and CDs — can make it challenging to grow your money. Some risk is usually involved if you want significant gains. Spreading cash across multiple assets and investments can help manage that risk.
A paid-off home can also result in a nice inheritance, although it may require children to sell it and split the proceeds. Don’t make the mistake of transferring property to your children before your death, though. Letting it pass to them as part of your estate plan will avoid the possibility of a large capital gains tax bill.
Retirement accounts can also provide an inheritance to children, and Roth IRAs offer the “most bang for your buck,” according to Prideaux. That’s because, unlike traditional retirement accounts, no tax is due on withdrawals from a Roth IRA.
Consider Starting a Business
Fleissig’s firm works with 750 families who have an average net worth greater than $100 million. He sees entrepreneurship as key to achieving this level of success.
“It starts with the entrepreneurial side,” he says. “That’s where you see generational wealth.”
Starting a business can be risky, but it can also reap significant rewards if successful. Not only does a company create wealth for current owners, but it can also be an income-generating vehicle for generations to come.
“Find the blue ocean” is Fleissig’s advice to those who want to create generational wealth. In other words, find an untapped market or an unmet need and develop a business around that.
[READ: How to Start a Small Business.]
Have the Proper Estate Documents
The next step in creating generational wealth is to develop an estate plan that will efficiently pass assets from one generation to the next.
Depending on your circumstances, that could mean setting up different trusts and converting assets from traditional retirement accounts to Roth accounts. You’ll also want to make sure that real property, such as your house, is titled correctly or placed in a trust and that wills are up-to-date.
“These are the types of things a financial planner cleans up,” according to Prideaux. A good planner will make sure everything has been checked off a person’s to-do list to ensure a smooth transfer of wealth.
[Read: 12 Documents to Prepare Now for Your Heirs]
Involve Your Children From an Early Age
Giving your children money is only part of creating generational wealth. You also need to teach them how to use it.
Fleissig says that within the financial world there is the concept of “shirtsleeves to shirtsleeves in three generations.” It refers to one generation working hard to build wealth, the second generation spending it all and the third generation having to start over from scratch. Financial literacy may be key to avoiding these scenarios.
“We’re very big believers in being very open with kids early on,” Fleissig says. “We’ve seen families create mission statements. We’ve seen families write books.” However they do it, communicating values and raising financially savvy kids may be key to keeping wealth in families for generation after generation.
“I do watch a lot of families be a little hesitant to loop kids in,” Prideaux says.
Unfortunately, this may create situations in which children don’t appreciate or understand where money comes from or how to manage it properly. For those reasons, parents should take time to ensure their children are financially literate and poised to make smart decisions.
“They are passing down more than just money,” Prideaux says. Lasting generational wealth also involves passing down values and the principles of sound financial stewardship.
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How to Build Generational Wealth originally appeared on usnews.com
Update 08/22/25: This story was published at an earlier date and has been updated with new information.
