By: Paul E. L. T. Borrow-Longain
While I wholeheartedly welcome new inventions and scientific discoveries, especially those which are designed to make the lives of the vast majority of us better – such as the internet, the sequencing of the genome, advances in renewable energy and eco-friendly transportation, that doesn’t remove my ardent beliefs that ideas of the past should not be forgotten, and left in the exclusive domain of the historians.
Technology, scientific advancement, and a better understanding of the planet, and our impact upon it, should be used to enhance and improve, and not replace out-of-hand, the ideas that previous generations have held.
While it is a practical impossibility to travel backwards in time, that shouldn’t detract from the significant advantages which can be had by having a firm grasp on the affairs of earlier decades and centuries – in other words, in the lives of our ancestors.
It is self-evident that opportunities of the past were significantly aligned and most favourable to those living in the higher social classes. This is to be expected and shouldn’t be used as an argument as to why an updated, modernised version should not be used to the advantage of many more individuals and families in the 2020s and beyond.
One of the traits one most admires about humanity’s ancestors is their belief in the importance of intergenerational wealth creation, family structures, and empowerment to ensure not only the financial safety and security of their descendants but also of their moral duty to provide for others—the second of these observations I will discuss at another time.
Thanks to the writing of The Rt Hon Julian Alexander Kitchener-Fellowes, Baron Fellowes of West Stafford, DL, who created the television series and subsequently two feature films, Downton Abbey, many, if not most of us, are acutely aware of the lengths the fictional Earl of Grantham goes to protect his family’s ancestral home and estates for his grandson. This is a perfect, if a fictional, illustration of the importance placed upon intergenerational wealth creation by the upper-middle, landed gentry and aristocracy. Lord Fellowes takes this seriously and understands the importance of intergenerational inheritance, as his wife, Lady Fellowes, is the senior descendant of the late Earl Kitchener. Had it not been for the Letters Patent creating the Earldom being so written, it would mean the Earldom would exist to this day (having become extinct in 2011 on the death, without an heir, of the 3rd Earl) and would be held by Lady Fellowes as Countess Kitchener in her own right.
As a brief aside, I had the honour of meeting Lord and Lady Fellowes at Exeter Cathedral when I was a sponsor of a military concert in support of our Army veterans.
Intergenerational wealth creation might sound pretentious to some, antiquated to others, and the exclusive concern of “the wealthy” by many more. This, however, is incorrect. It is simply a more concise way of saying, “protecting your hard-earned money, assets and property for the benefit of your children and grandchildren so that they have a better life than their parents and grandparents”. I would argue that any parent or would-be parent has the same wish – they might describe differently.
How to achieve intergenerational wealth
As with everything in life, it’s perhaps far easier to structure the required mechanism from the start, though that shouldn’t be seen as a reason not to try at a later date. Most things are possible with the proper knowledge and expertise.
Below I have outlined methods which, if used wisely, can better ensure financial security for generations of your family.
Buy assets, not liabilities – every one of us is human and has human failings. One of those is seeing something you want and wanting it immediately – such as a fancy sports car, that 55 in flat-screen television, or a holiday to wherever you wish to explore next. Each of these is a liability; they lose you money and are, therefore, of no use if your ultimate objective is to build intergenerational wealth. Instead, consider finding an asset (such as an income-producing property or other suitable investment) first, calculate the passive income you’ve gained, secure a loan to purchase your “want”, and use the newly found passive income to repay the loan. Once the loan is repaid in full, you’re left with your “want”, your asset, which hopefully continues to increase in value, and the newly discovered passive income stream. In this case, patience is a virtue worth having.
Never sell assets without a good reason – assets have intrinsic value. If you have been sensible in acquiring them, they are appreciating (going up) in value and earning you a passive income. Never sell these, as not only are you surrendering their value today, you are losing all of their future income and appreciation. An exception to this rule would be when selling such an asset would improve or protect a more valuable asset – such as selling a painting, to repair the roof of your house.
Realise the Tax Code is your friend – I don’t believe I have ever met anyone who relishes the idea of paying taxes. However, it is the cost of living in a civilised society. People see wealthy individuals and business owners only need accountants, and this is both incorrect and financially dangerous. Furthermore, I have met very few people who like accountants (I’m one of them); however, an experienced accountant should save you more money than they cost. They know how to reduce tax liabilities, maximise profit, and protect your assets. In short, research, seek referrals from reliable sources, and locate an excellent accountant. Remember that the same tax system that helps the “rich get richer” is the same system available to you – the difference is they ensure they are getting the best advice.
Work as a Team – intergenerational means between generations, grandparent to parent to child. Working as a close family unit has the potential to be your most powerful tool. This is best explained with an example: Downton Abbey’s owners grow and protect their families’ wealth by working together. The Estate owns everything, not the individual, and the estate is used for the benefit of all.
For a moment, let us investigate a family consisting of three generations, all of whom want to live close to each other. An average house is £250,000 though it is perhaps small with no land. However, pooling the resources of the three generations could produce a £1 million property-buying pool. In my experience, depending on location, crossing the £500k-£750k threshold sees property sizes and their land footprint rapidly increase – many with outbuildings etc… The grandparents want to be close at hand for their grandchildren, though they don’t want a large house, so they convert/build a dedicated home for them – the Dower House. The parents wish to have a large house and can maintain such a property – they live in the main house. Likewise, the children want a level of independence, and that’s where the converted roof of the garage is beneficial.
This looks exciting, though it’s of no use to the ordinary man and woman on the street
A false conclusion. Each of the above has the potential to increase financial security; independent of the initial capital available, a relatively moderate investment can become significant due to compound interest.
As an illustration, the newspapers speculate that spending £3,000 on a family summer holiday is “normal” in the current climate. Let’s hypothesise that it’s possible to have £10,000 to invest on the birth of a child. Assuming it’s managed proactively by an expert firm of investment analysts and can double every five years. By the time that child is 20 years old and perhaps going to university, the investment is worth £160,000. By the time they reach 60 years old, it has increased to over £40 million. Even if the investment doubles every ten years, it is nearly £700k. Relatively modest investments can generate extraordinary returns (before tax considerations).
The pitfalls and complications – The Family Dimension
As with every theoretical idea, it has its limitations. When it comes to intergenerational wealth creation and protection, better known as Estate Planning, family dynamics can be your best advantage or your Achilles Heil.
While it’s self-evident that working together benefits everyone, family interference between generations can stop plans dead in their tracts. It is imperative that the different generations respect each other’s opinions and don’t attempt to dictate or interfere with each other’s lives. Each generation has its own opinions, ideas, and views. This is a powerful knowledge bank, especially when enhanced by professional experts, to grow intergenerational wealth.
Your neighbours may well be your parents or grandparents, though, like unrelated neighbours, they don’t need to live in each other’s pockets.
Personally, the idea that my future children can grow up and learn from their grandparents because they live on the same estate is a future that fills my heart with warmth. I would have absolutely no problem with having a Dower House on the same piece of land. Regrettably my future children will only know their mothers parents. Though I have a large extended family for them to know.
The advantages for your family and the country
Whenever one thinks about intergenerational wealth creation, attention is ultimately pulled to estate planning and the evils of Inheritance Tax – a subject that warrants an article of its own. However, intergenerational planning has significant benefits:
- Families develop an asset holding that gives them a safety net in the future;
- Families benefit from multiple passive revenue streams, which open doors to new opportunities;
- They can benefit from private healthcare and education;
- Families can support each other and future generations without risking themselves;
- Family members have a significant safety net should anything unforeseen occur, such as disability, sickness, unemployment etc.…
Intergenerational wealth is also beneficial to the country as a whole:
- Decreased reliance on public services, freeing resources for those who genuinely need them;
- Reduced burden on the social security budgets;
- Increased tax income (from these passive investments);
- Increased environmental protections, as individuals and families feel more connected to their “ancestral home”;
- Decreased pressure on senior care;
- Increased job creation;
- Closer community bond and engagement.
In conclusion, I will happily concede that aspects of this are more beneficial to rural living, which isn’t wanted as an option for all. However, parts of the above can be used to the benefit of most people.
A follow-up article will be required to discuss how to best protect the intergenerational wealth that’s just been created. In my opinion, Inheritance Tax is detrimental to individuals, families, and the country.
