If you’re lucky enough to have passive income streams in place, the transition to retirement can not only be smoother, but it can also enable a way to build generational wealth.
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Generational wealth — money or assets passed on from one generation to the next — takes careful consideration, planning and time. Yet, thanks to passive income streams, there are several ways retirees can achieve this more seamlessly.
Whether your income is passive or active, if you earn more than you spend or if your investments grow faster than you can withdraw, then you are going to increase your wealth. The trick is to teach the next generations how to handle money so that they can continue your legacy.
Here are several ways to build generational wealth.
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Create a Trust Fund for Your Children or Grandchildren
Trust funds can be structured to provide financial support for specific purposes, such as education, homeownership or starting a business. In addition, creating legal structures such as LLCs or trusts to shelter your wealth will ensure that the management of your money is consistent with your wishes.
This allows you as the grantor who is funding the trust to control the division of assets and the reasons for use. In turn, this will pay out only if the growth of the account allows the principal to remain.
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Consult an Estate Planning Expert
Another key step for retirees is to consult with an estate planning expert and focus on investments and an estate plan that will shield their younger relatives from estate taxes and capital gains on investments. For example, if you own homes in two states, one state may have an estate tax and one may not, so you should consider changing your official residency to a place with lower or no estate taxes.
Keep in mind that this can be complicated, so involving an estate planner, financial advisor or tax expert is crucial to make sure all the right steps are taken.
Be Conservative With Your Money
It’s difficult, late in life, to build generational wealth. As such, the kind of returns required in a short amount of time for someone who is of retirement age generally would require incurring substantial risk.
While any such undertaking of this magnitude should involve consulting a financial advisor, generational wealth could be a matter of form as opposed to size. In other words, being conservative and implementing small spending or savings habits along the way can add up to big gains in the long run.
Invest in Real Estate Trusts or Rental Properties
Another way to grow the money earned via passive income streams and pass it on to future generations is for retirees to invest in real estate trusts or rental properties. There are no guarantees with the housing market, but real estate often appreciates over time, providing a steady stream of income through monthly rental payments or dividends.
Several property types can be used as residential rentals, including single-family homes, condos, duplexes, triplexes or apartment buildings. You could also dabble in commercial uses or investing in mixed-use properties that can add diversification to your investment portfolio.
Invest in Diversified Financial Instruments
Dividend-paying stocks, bonds or private debt can be a prudent way to grow wealth over time. These investments can offer a balance of risk and return, potentially providing steady growth that accumulates wealth for future generations.
For instance, dividend-paying stocks are particularly attractive because they not only provide regular income through dividends, which can be reinvested to increase the value of the initial investment, but they also offer the prospect of capital appreciation. Bonds can also add stability and regular income to a portfolio through fixed interest payments, making them a lower-risk option compared to stocks.
Not only does this give you strategic diversification in your portfolio but these types of investments can balance each other out. What this means is that one volatile type can be offset by the stability of another, thereby providing a more stable growth path that can help accumulate wealth sustainably for your future as well as your family’s generations to come.
Invest in Financial Literacy
Last but not least, ensuring that heirs are financially literate is also key, as knowing how to make your money work for you is more than half the battle. You can use your financial success to teach your children or grandchildren the lessons you’ve learned and the strategies you’ve used to build their own wealth.
This will also help grow and preserve the money for many generations because they will be ready when the time comes after your passing. In order to ensure this, one strategy is to share your own investing strategy with them in real time, telling them what you are investing in and why, and in turn, get their opinion on what investments to consider.
This article originally appeared on GOBankingRates.com: 6 Ways Retirees Can Build Generational Wealth
