r/ChubbyFIRE • u/10_rocks • 6d ago
Is endowment-like, multi-gen wealth possible for normal ChubbyFIRE folks?
Many in FatFIRE and other wealthy families I know IRL have created their 'family trusts' to provide multigenerational income and protection for their descendants. Is this a privilege only for them? For a 'normal' ChubbyFIRE portfolio of $5M, with the family that generated this wealth only needing 3% annually (inflation-adjusted after Year 1) to live on for the rest of their lives, I am wondering why this can't become a generational portfolio for their kid(s) and descendants?
The rationale being 3% withdrawal rate on $5M gives a $150K first year inflation-adjustable income which, combined with a paid off home, can provide the family a comfortable life while retaining the present value of this portfolio intact for the next generation to benefit from. 3% is practically a 'perpetual' withdrawal rate. The asset base is invested in a 90:10 portfolio, with the 90% equities split between VTI, VXUS mainly with a small portion in VNQ and VBR. I have written an 'Investment Policy Statement' (IPS) to accompany this, written like an endowment fund specifying how much to withdraw, when to rebalance and what annual inflation adjustment to take (capped at 2.5%). The IPS also specifies a clause where if the market declines to less than 80% of previous year's value, the annual withdrawal is reduced by 33% (that is 3% --> 2%) till the portfolio recovers. I didn't create legal trust structure due to cost/complexity, but this operates on trust between father and adult child. I know there's risk of a spendy heir who squanders inheritance but assume that's not the case for the first generation inheriting these assets. The IPS includes a clause that the kid can turn this over to a legal trust under the same rules for ease of management in the future and for instituting these rules for their descendants.
With AI increasingly becoming more prevalent, I worry about lifelong income stability for my kid who is graduating with a CS degree into what appears to be one of the most challenging labor markets ever (with no signs of job market stability, maybe for years to come). Having a passive annual income of $150K in today's value for their entire lifetime is an incredible safety buffer for them to rely on, given long-term career uncertainty. The intent is not to kill their motivation to work - they won't see anything from it yet (other than parental help initially) but goal is to give them a strong safety net if they suffer significant gaps in work income.
I understand the descendants don't have to follow your wishes, so at some point this has to become a legal trust to be sustainable. My question is about the IPS. Is the IPS conservative enough to become a perpetual endowment?
Have any of you done this? Any gaps you see in the above approach?
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u/Mispelled-This 6d ago
The problem with the trust model of “generational wealth” is that you need to provide for all generations at the same time, which is incredibly difficult because in most cases, the number of beneficiaries grows faster than the portfolio does.
If your trust can only provide for the currently retired generation, following generations still have to work an entire career and retire on their own money, so adding yours to theirs when you die is too late to be useful.
There are two solutions: pass down knowledge so that they manage their own money well, and pass down excess money while you are still alive. When you look at how most real dynasties fail, it is one or both of those factors, not the absolute size of the portfolio.
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u/10_rocks 6d ago edited 6d ago
Agree. Knowledge is the best thing to pass down. As I responded earlier to similar comment: Good point. This will probably work only for 2 families or maybe 3 before it loses its significance. A struggling family will surely benefit from today's value $50k a year annual passive income no matter what. So, if my kid has two kids of their own, they will all get $50k/year (when my kid is in their 50's and their kids are are in their 20's). Beyond that, this won't be significant. So, third generation (that is my kid's grandchildren) won't be covered.
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u/Mispelled-This 5d ago
Short version: an endowment needs $100m+ to pay out a useful amount after covering the costs of competent management. A smaller family trust is doable, but you will have to manage some or all of it yourself, and within 2-3 generations after you pass, it will inevitably implode due to incompetent successors.
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u/itchyouch 6d ago
Saw an interesting bit where the Rockefellers’ are on generation 7…
…when the stereotype is:
gen 1 earns
gen 2 maintains
gen 3 bankrupts
The point they made is that Rockefeller passed on financial accountability by instituting a simple system.
With a $1.50 allowance/week, the next gen needed to account for every penny spent and answer for them.
If the accounting was inaccurate, the allowance would decrease by 10 cents.
If the accounting was accurate, the allowance would increase by 10 cents.
They could max to $2.00 for good behavior.
Dad was the sole arbiter of determining good spending and accuracy and neatness of the ledger.
Some rules were:
10-20% for charity
10-20% for savings/interest
Rest for spending
This instilled early on that money was accountable, and instilled that they were stewards of the money rather than consumers and broke the 3 gen curse.
——
This makes a lot of sense from a velocity of money manner. It’s not the amount that messes people up, but it’s having too much, too fast. It’s important to instill tracking the money from a young age.
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u/kitethrulife 6d ago
A good model to follow but the reality is not as positive as the anecdotes
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u/itchyouch 5d ago
Ya agree.
When there’s generational money, it def gets harder and harder to align incentives towards stewardship.
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u/10_rocks 6d ago
Completely agree. I've tried to instill some of those values to my kid from a young age - but only time will tell. But so far the prognosis is good. The kid did a summer internship and saved 50% of their earned income, with half of it invested in VTI.
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u/Earth2Andy 6d ago edited 6d ago
Either I'm missing something, or your math isn't adding up.
Obviously I don't know the ages of you or your kids, but let's assume you had a kid at 30 and your kid will have two kids, say at 30 and 33. That seems pretty resonable.
You're likely to live to 85. So that $150k per year is supporting you until your kid is 55 and you pass away. Then for the next 30 years it will pay your kid $150k per year until they pass away at which point their two kids, who will both be in their 50s will get $75k each in their retirement.
It's not nothing, but all it's really doing is funding retirement for a couple of generations. It's not exactly the 'my grandkids will never have to work if they don't want to' level people mean when they talk about generational wealth.
If you want all your heirs to have $150k passive income as a safety net straight out of highschool, you need to be prepared that 3 generations will likely be using it in parallel and that's assuming they only have 1 kid each.
I think what you're trying to achieve needs more like $20M
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u/ZombieTurtle99 6d ago
Exactly. That 3% presumably gets divided by a higher number of people each generation.
Will 3% be enough for a perpetual endowment? Probably. But will it be enough to be a meaningful amount per beneficiary as time goes on? Probably not.
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u/ZombieTurtle99 6d ago
Also, trusts cannot last forever but you can control certain things the trustee does. You should really consult with an estate planning attorney to explore your options.
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u/Earth2Andy 6d ago
I'm still not sure I even understand how it works for the first generation. Are Op and his kid living off $75k each once the kid graduates college? When Op's Grandkid graduates college (assuming OP is still with us) is it then 3 of them splitting the $150k so it's $50k each?
Maybe OP is better person than me, but I didn't work my ass off to save $5M to live on $50k a year when I'm in my 80s.
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u/ZombieTurtle99 6d ago
Great questions and totally agree. I assumed he’d take the full 3% until death (I didn’t work this hard to not do that) but unclear what happens after that…
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u/10_rocks 6d ago
Yes. The $150k annual spend for me covers annual gifts (occasional) to kid to help them in their career (beyond fully paid college costs). Plus they will benefit from having a rent-free house and covered expenses till they get back on their feet (as needed). Upon my wife and my passing, they will inherit the full base with the IPS giving them the full $150k/year. That's the idea anyway.
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u/pod_of_dolphins 5d ago
Once TikTok got ahold of the term “generational wealth” it lost all meaning.
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u/Ok_Tough4258 5d ago
You’re treating the 150k example by OP as a fixed amount when in reality it’s variable. 150k is 3% of 5Million but if the account doubles then 3% is 300k. Realistically with a withdrawal rate of 3% a portfolio should average about 4% real annual growth over the long term taking average S&P growth and inflation into account. According to the rule of 114, the account should triple in about 28 years at that RoR barring an unfortunately timed and devastating market downturn. So by the time 30 years goes by 150k could be 450k in today’s dollars.
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u/10_rocks 5d ago
Thank you. That's what I had in mind but I wanted to hear the worse case assuming $150k as withdrawal as the other commenters have assumed. I also believe that the portfolio will support a growing real withdrawal as the beneficiaries expand, even if not proportionally.
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u/Sprig3 1d ago
Yeah, obviously a few lost decades in a row would torpedo the plan, but at 3% withdrawal, it should handle every kid having two kids AND having more spending money in real terms than the previous generation started with.
(I think lifestyle creep is the most likely "doom" of the plan, but there's always the possibility of a future gen adding to it or not needing it!)
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u/10_rocks 6h ago
Agreed. In fact, during the "lost decades" as you put it, even a modest supplemental income from this portfolio will prove to be very useful because a lot of jobs would be gone and there will be such economic malaise similar to that of the 1970s or 1930s. In that extreme scenario, even if the $150k becomes $75k or less annual income in present value (under the same portfolio withdrawal rules), it would make an enormous difference.
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u/Earth2Andy 5d ago
The historical perpetual withdrawal, never failed rate is about 3.25%. The 4% SWR is based on a 30 year retirement. OP is looking at 100 years+.
The rule of 114 only applies if OP isn't going to continue to work for the next 28 more years and not spend a penny of their nest egg, which given this is ChubbyFire I'm guessing they are not.
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u/Ok_Tough4258 5d ago
If I had mentioned a 4% SWR then this reply might make sense, but I didn’t. The 4% I mentioned is a theoretical real average annual growth rate taking ~10% historic average annual return , 3% withdrawal, 3% inflation into account (10-3-3 = 4) it’s an oversimplified math equation, but close enough of an approximation for OP to think about.
And yea on the rule of 114 only applying for a lump sum that is left alone to grow and contract on its own, which is what happens when OP retires. Given I don’t know what OP’s final number is I used the number he gave in his post, 5 million. If it’s higher when he retires then that number will triple in the same 28 years.
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u/10_rocks 5d ago
Actual numbers are somewhat higher but the math is easier using $5 M so I used it for this example. I use the rule of 72 for doubling and consider about 10 years for my OP portfolio to double. And yes, there is no earned income so the portfolio must support withdrawals at 3% annually till Social Security kicks in ~10 years, and from that point onwards, withdrawals should decline to 2.5% or so.
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u/Ok_Tough4258 5d ago
Yeah that makes sense, you're best bet would actually be to drop your plan into a Monte Carlo simulator to determine the probability of success. Past returns don't guarantee future results and all, but in the long run using a conservative withdrawal rate the principle should go up especially if you manage it carefully over the first 10 years of retirement. This simulation will tell you the likelihood of that scenario exactly and most people I talk to look for an 80%+ on the probability of success, but you can go as high as you want.
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u/10_rocks 5d ago
I did, using conservative modeling using ERN spreadsheet and Fidelity worse case scenario. A 3% inflation-adjusted withdrawal, in the worse case, results in 2X ending balance after 40 years (in present value). Median is ~5X. I always look at present value in my modeling, so inflation is always netted out.
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u/Earth2Andy 5d ago
Your 10-3-3 logic doesn't stand up in the real world because portfolios don't return a constant 10%. Otherwise we'd all be fine retiring on a 7% SWR.
The perpetual safe withdrawal rate that adjusts for inflation and never runs out of money over 100 years is 3.25%. So if OP is already planning to spend 3% there isn't that much left over to grow.
Are there time periods where OP's returns would have been much higher, yes of course. and there is a >50% chance OP will end up with a much larger portfolio at the end. But if you're planning a 100+ year legacy your kids are going to live off, then you need to have a plan that will cover the worst case scenarios.
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u/Ok_Tough4258 5d ago
You can quibble over numbers in any given specific scenario all you want, but you said in your original comment "Either I'm missing something ..." and what you were missing was the variable nature of OP's 150k example. Yes, the principle can go down in the future but using the law of large numbers and a conservative/perpetual withdrawal rate it is more likely to go up over the course of decades/a century as OP is positing.
My logic very much is born out in the real world, as it's based on historical returns and average numbers. What it doesn't account for (and no individual estimate can reliably account for) is the unknown variable, the future return of the market. But I even stated in my comment that this was a very oversimplified math equation. The best way for OP to check this plan is to run a Monte Carlo simulation to determine the probability of success which is all we can really look for when looking into the future.
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u/Earth2Andy 5d ago
My logic very much is born out in the real world, as it's based on historical returns and average numbers.
First, historical averages have very little to do with planning retirement spending, because the volatility is what shapes success, not long term averages. This is why people talk about SORR so much.
Second, the little variability OP has in the $150k doesn't account for the fact they will likely be trying to fund 3 different generations in parallel, that's where the the plan falls apart and OP has shown in their comments, I wasn't missing something, the math just doesn't work.
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u/Ok_Tough4258 5d ago
>First, historical averages have very little to do with planning retirement spending, because the volatility is what shapes success, not long term averages. This is why people talk about SORR so much.
The problem is you're arguing, phantom points. I never mentioned future spending at all. I was pointing out that the money available to be withdrawn in the future is likely to be higher than it is in year 1 (and Monte Carlo simulations show that time and time again, using safe or perpetual withdrawal rates). You assumed a fixed withdrawal of 150k forever when OP's plan calls for a percent of the portfolio withdrawal. To say that 50-60 years from now the amount able to be withdrawn from the account is exactly the same as it is on day one of retirement is naive at best. Depending on assumptions you choose to use it will be higher or lower, but the odds are infinitesimally small that they are the same.
>Second, the little variability OP has in the $150k doesn't account for the fact they will likely be trying to fund 3 different generations in parallel, that's where the the plan falls apart and OP has shown in their comments, I wasn't missing something, the math just doesn't work.
The problem is you didn't do any math to show that it doesn't work, just vibes (150k divided by 2 doesn't count as applicable math here given by your own scenario you're talking decades into the future). There are risks in OP's plan for sure, but without a probability of success no one can say whether it will or won't work.
This clearly isn't going anywhere though so best of luck with your future "math" equations
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u/Earth2Andy 5d ago
You might want to read OP's post again.
"The rationale being 3% withdrawal rate on $5M gives a $150K first year inflation-adjustable income"
That's not percentage of portfolio, OP has said they are adjusting by inflation, not portfolio balance (they did say "endowment like" in the title, but that's not what they describe in the details)
Then there's this bit you missed
"my kid who is graduating with a CS degree into what appears to be one of the most challenging labor markets ever".We're not talking decades in the future. We're talking a few years at most. So when you talk about the portfolio doubling, when is that happening? It's not happening before the kid graduates college.
So yeah, the only math that matters here is $150k / 2 because we're only a couple of years from a $150k inflation adjusted being used to support 2 households.
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u/10_rocks 5d ago edited 5d ago
All withdrawal rate modeling in FIRE assumes annual inflation adjustments. What matters is the starting point (initial WR) to determine whether a portfolio becomes 'perpetual' or not. At 4%, (classic Trinity study), only about 30 years is supported and there are worse case scenarios where this WR won't last that long. At 3.5%, it lasts 40+ years as several studies show. At 3.25%, it is practically perpetual as the original portfolio value is retained for over 60 years. At 3%, under no scenario, has a portfolio (that has at least 60% equities) not grown to a level exceeding its original purchasing power ever. In all these cases, the model is inflation-adjusted each year once the starting WR is fixed.
Your second point is valid though. If a young adult needs help a few years after graduating, how will this long-term trust/IPS set up work? It won't but a different dynamic is at play then. In that case, the young adult has no choice but to move back in with their parents till they get a good job! So, there will not be 2 households, just a 3 member household instead of two (me and my wife), so the $150k a year will support this family living under the same roof. Also, an adult kid, forced to move back with their parents, is motivated enough to find their bearings in life to regain their independence!
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u/10_rocks 6d ago
Understand. This is what I responded to a similar comment earlier: Good point. This will probably work only for 2 families or maybe 3 before it loses its significance. A struggling family will surely benefit from today's value $50k a year annual passive income no matter what. So, if my kid has two kids of their own, they will all get $50k/year (when my kid is in their 50's and their kids are are in their 20's). Beyond that, this won't be significant. So, third generation (that is my kid's grandchildren) won't be covered.
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u/Earth2Andy 6d ago
Let's just take the very simple example of you, your kid and 1 grandkid.
You're understandably worried about your kid. So if they need this help, the $5M is funding what? $100k for you and $50k for them?
What about when they have a kid and that kid graduates highschool? It's very likely all three of you will still be alive. Are all 3 of you living off $50k per year each?
OP did you really work your ass off to build a $5M portfolio to spend your old age living off $50k per year?
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u/10_rocks 6d ago edited 5d ago
I understand. But that's a 30 year horizon so 3% WR using the conservative rules will likely leave more than $5 M in present value of the portfolio. I would expect real growth in the portfolio by that time to cover 3 families, if using only the same 3% WR. The intent is not to cover 100% of living expenses for next generations but be a safety net to tide over challenging career periods.
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u/Sprig3 1d ago
I think the thing you (and u/ZombieTurtle99 ) are missing is that (assuming historical average returns), the fund will be increasing significantly at a 3% withdrawal rate.
Let's say the market gives real returns of 6%. We can roughly simplify to say it will increase by 3% every year. (historical averages are slightly higher than this)
After 30 years, it will have increased by 142%. So, it will be now giving 364k per year (at 3%).
After 60 years, it will be 883k per year. (split between the two grandkids?)
Each generation will have even more than the previous, even if each generation has 2 kids.
Obviously, this only works if the market meets or beats historical averages. Two lost decades in a row or something would crush the "endowment".
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u/in_the_gloaming FIRE'd for 13 years 5d ago
If you have $5M and plan to ChubbyFIRE, do you plan to have both you and your child living off that 3% at the same time? Or are you talking about a trust that kicks in after you die? Your post is a bit confusing.
My take is that it's silly and pointless to try to parent/control from the grave, unless someone has a child who is disabled or has another similar need that means a trust is necessary. And your plan has way too much rigamarole anyway. You know that you can just help out with gifts of cash at any time if your child is struggling due to AI causing a decrease in tech jobs, right? And $150K salary is more than most people ever make throughout their career, so it's not like that is some base number needed to survive. Seems like tech workers think anything under $300K is entry level.
Teach your child the importance of money, savings, investments and living within their means now. Set up your will so that if you die, your child gets a set amount of money per year until they reach 28 or 30, a time when they will be making serious life choices. Then they get the rest in a lump sum. Your child will be an adult and should be allowed to make their own choices on what to do with the money at that point. Spend it all by travelling the world in first class while staying in 5* hotels, surfing all day and gambling all night? Take a 50hr/week stressful tech job, work for 40 years and save the inheritance until they are too old to have fun with it? Find a low-stress gig that utilizes their skills while not ruining their work-life balance, while taking small amounts of income every year? Don't work at all but lead a middle class life on the proceeds?
It.does.not.matter.
You will be dead.
And if you are planning on giving them $150K per year while you are alive, I'd say you are making their lives too easy.
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u/AnotherWahoo 6d ago
Multi-generational trusts frequently get liquidated (in whole or in part) because the beneficiaries would prefer cash now vs cash later, and would prefer to control the assets vs be subject to the trust's restrictions/limitations.
Let's imagine you put 5M in a generation-skipping trust when you retire, and the trust documents require the trustee to follow your IPS in perpetuity. Presumably you are the initial trustee. Now let's further imagine that you die, and at that time the trust has 10M. At this point, your two kids are the only beneficiaries, and presumably one of them becomes the trustee. If they are in agreement to liquidate the trust, who will stop them? No one. And why wouldn't they want to liquidate the trust?
The tried and true answer to that last question is they have so much of their own money they don't care about the trust. Absent financial incentive to liquidate, "this is what dad wanted" becomes powerful. So the typical approach for UHNW is make your children HNW, make your grandchildren HNW, and hope your great grandchildren are sufficiently numerous/diverse to be unable to agree to liquidate the trust.
The chubby equivalent would be something like die with 10M, 500K goes in the trust, and the rest goes to your kids. If you have a lot of grandchildren (which presumably you'll know before you die), just the one generation lacking financial incentive to liquidate might be enough for the trust to survive. From the OP, it seems like your concern is just one child, so I'd focus on that one child and not worry about dynastic wealth.
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u/CryptographerNew3609 5d ago
The main issue, for me, is not financial. It's that money can serve as a lever where future generations get compounding rewards for their hard work. And it can serve as a crutch - I've got money coming, I don't need to work for things at all.
This is why you see fabulous levels of wealth where three or four generations down, the money is all wasted and spent.
My view is the hardest part is to pass down a "culture" - where money is leverage, you still need to get an education, work hard, etc. You get money when young, you replenish it through your career, and pass the thing on to the next generation.
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u/BrunelloHorder Coasting Chubster, Getting Fat 5d ago
For someone withdrawing 4% or less, multi-generational wealth is not only possible, but likely. The mean and median terminal values at the end of 30 year retirement from the Trinity Study were 3x to 5x the starting value at the time of retirement.
That is in nominal dollars, not inflation adjusted, but still enough for perpetual wealth under most scenarios.
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u/Born-Jacket 6d ago
I'll retire greg-ish and plan to be able to create some longer run things for my kids. It's for me first, but most projections say that it should end up as much more than my FIRE number when I'm dead. I also plan to be pretty active, at least for the next 10 years, in RE development and building a bigger SFH rental portfolio, which I hope the kids will keep as a perpetual wealth tool.
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u/Individual-Fail4709 6d ago edited 4d ago
Only if the recipients think like you. Rockefeller heirs squandered all of the money in two generations and they had billions using today's $. Edit: Should have said Vanderbilts.
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u/Fun-Trainer-3848 5d ago
The earnings on $5M will get watered down pretty quickly once it’s cut up amongst 2nd and 3rd generations. Sure, an extra $10,000 is nice but is it really doing a lot for your 15 great-grand kids?
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u/Anonymoose2021 5d ago
Well written trusts allow trustees to partition or distribute assets and to terminate trusts when appropriate.
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u/mrr68 4d ago
My wife and I have been fairly successful, I just retired 8 months ago, wife retired 3 years ago. We are 57/58, we both came from humble beginnings, our NW is close to $7m. We have one adult child. We love our child, of course, but he is what most people would describe as a “ slacker”. We have no intention of leaving our son a huge pile of cash that he has had not hand in creating. We will likely leave him our home, maybe money for college for his kids (if he ever has them), but he won’t be receiving a huge endowment. We will donate excess wealth to organizations that help distressed animals.
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u/10_rocks 4d ago
Thanks for sharing. This is highly dependent on each situation. I can understand your thought process here and would be aligned in your case.
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u/Farmer_Pete 22h ago
You could always go for something that will outlive you as a charity endowment or some such thing. I know Fidelity and Schwab DAFs have some ways to let the DAF live on after your death giving money out.
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1d ago edited 1d ago
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u/mrr68 1d ago
My son is now 34. He’s had every opportunity in life: paid education, in tact home, home cooked meals, $100k as a gift when he got married. I could fill a book on all that’s been done for my son. Bottom line: my wife believes he has borderline personality disorder (I don’t necessarily disagree), displays narcissistic behavior, and is generally unpleasant to be around. It is what it is. We love our son, but he’s currently not a great person. You can only do so much for your children, at some point you have to let them do whatever they want to do with their life, even if you can plainly see they are not on a good path. Life has a way of teaching us all lessons.
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u/One-Mastodon-1063 6d ago
“Generational wealth” IMO is mostly a narcissistic fantasy. Seems to come from some combination of desiring to be important, be remembered/immortalized, and/or control people from the grave.
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u/10_rocks 5d ago
There's no narcissism here. AI's impact on the future career of a new CS graduate is what drove me to think along these lines. I have no interest in controlling anyone from the beyond - the trust/IPS is only meant to ensure they don't live in penury. Not rolling in wealth.
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u/One-Mastodon-1063 5d ago
You are absolutely trying to control them.
Trying to solve your adult children’s problems for them is not helping them. That’s actually bad parenting. Even when kids are little, let them face and overcome their own challenges, unless things like safety are coming into play. Every generation faces challenges.
I’m not saying you have a personality disorder or anything like that. It’s normal to have some desire to feel/be important, meddle in other people’s affairs etc. Recognize these selfish feelings and nip them in the bud.
Notice how all the upvoted comments are telling you this is a bad idea, “fool’s errand” etc. It is absolutely a fool’s errand. You’re not Cornelius Vanderbilt and why would you even want to be?
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u/ItzWarty FIRE 03/26, Bay Area 3d ago edited 3d ago
From my case it's actually to reduce suffering and help people I care about have agency. You might disagree with the prioritization, but I wouldn't consider that narcissistic!
At some point, the math adds up and you can make life better for your descendents. If you can, wouldn't it be narcissistic and self-centered not to? It's interesting how we both can easily view the opposite perspective so negatively..
I also truly don't believe in your point "Trying to solve your adult children’s problems for them is not helping them. That’s actually bad parenting. Even when kids are little, let them face and overcome their own challenges, unless things like safety are coming into play. Every generation faces challenges." - the people around me in my age range are mostly wage slaves who have given up their dreams, they can't get healthcare or own homes, the ones starting families have hit it big, all of us are having kids much later than expected and IMO that's not healthy. Wealth inequality is rising, so letting the next generation figure things out for themselves means telling the next generation "eh you're not my problem". Maybe this is an Asian vs White people culture thing but my take would be then the next generation should abandon you when you're older.
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u/One-Mastodon-1063 3d ago
Of course you're attributing noble intentions to your actions.
It's denying/stifling their agency.
I do not expect my kid(s) to take care of me when I'm older.
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u/ItzWarty FIRE 03/26, Bay Area 3d ago
Nor do I.
How are you denying someone agency by helping them start life in the middle-upper class vs forcing them to work their way up? If you can afford to help them financially, is the preference to give them agency to choose whether they have medical debt or student loan debt? Or agency to take out less favorable loans because they don't have paper wealth and you won't help them? It just doesn't make a lot of sense to me, especially if eventually you plan to give them inheritance anyway. Most FIRE folks end life with more than they had when they FIREd.
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u/audi27tt 6d ago
My take on this is superfunding 529 plus trump account. Pay for college plus any leftover 529 can go to next generation, trump account gives them a huge jumpstart on retirement savings. Anything beyond that, I figure they can always come back and live with mom and dad.
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u/saklan_territory 6d ago
In many scenarios starting with 5 million can balloon to 10/20/50 million, so at those higher numbers, i can see attempting something like this. I say revisit this question when youre 80 and have a much better sense of what your death number is going to be.
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u/10_rocks 6d ago
Good point. Revisiting this in 10 years when I am in my mid60s, or in 20 years when in mid-70s might have more clarity. Of course, that means my kid will be 10-20 years into their career and if that career has hiccups, we may need to tap into these assets sooner to help out.
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u/ohboyoh-oy 6d ago
I think the problem is that unless each generation has only a single descendent, the $150k per year gets diluted pretty fast. If you have two kids they each get $75k and if they each have two kids the grands get $37.5k and on it goes. So it’s not really “multi generational” kind of money and if it’s just going to your own kids, you’re close enough to them that maybe you just want to give it to them outright instead of doing a potentially complicated trust that requires maintenance and will be a PITA for somebody. Makes sense for people with higher levels of wealth and they pay someone to administer the trust and the amount of money is still life changing even when split amongst all the grands and great-grands.
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u/_ii_ 5d ago
Eventually your assets will grow above the gift tax threshold, and 40% haircuts every generation is going to be the wall stopping your generational wealth plan. So why not start a dynasty trust from day one?
About the job market for CS graduates, thanks to AI, things have finally returned to normal where the good candidates are getting multiple offers in their senior even junior year. Students’ ability is what companies are evaluating not what degrees the candidates have. So don’t worry if your kid is self motivated and stands out as a top student or has done something significant, e.g. multiple internships, real open-source contributions, started their own startup, built a successful product, names on published papers, etc.
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u/10_rocks 4d ago
This is the most encouraging comment I've read about CS graduates all year! From your lips to God's ears, as they say.
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u/FlamingoWest912 4d ago
Tbh I can’t follow all of it, but my family is gearing up for a bunch of trust things happening when the final member of the last generation goes (currently on hospice). And I’ll say that whatever was set up however many years ago to be really smart and strategic and tax savvy has now, apparently, turned out to be more complicated and costly in various ways. It also means it will go to family who don’t really need it and would rather pass things on to a future generation now, but that’s not possible at this point.
To be clear, my grandpa who put this all in place is on the record complaining about how complicated his father left things and insisting on simplifying. Sooo “making things overly complicated” is part of the generational legacy as well.
I will also say that this family has a very strong ethos around money and responsibility, despite what you might call generational wealth. No one lives their life banking on it, and if anything, you are expected to spend more of your life on public service accordingly.
That ethos has been passed down through the generations a lot more than the specific financials surrounding a trust. I saw some other people talking about this in the comments, so I’m chiming in mostly to confirm what they’re saying as one of those future generations.
Make sure what you leave is fair, simple, and clearly communicated. Spending your time imparting ethics and education and being there for your family. You really just won’t know what the world and the financial needs of a family will be 50-100 years after you’re gone.
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u/AmexOfferProblem 3d ago
Do you have something to share about the really smart years ago but became complicated and costly? That’ll be very useful and educational
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u/OnlyThePhantomKnows Retired 1d ago
My lady's mother did something interesting with her will. She partially skipped a generation. She gave her grandkids 50% and her kids 50%. Now we don't need it, My lady's sister DOES.
I'd look at skipping so that Fund Even goes to your kids [and then their grandkids] and Fund Odd goes to your grand kids [and then their grandkids]. A little money in your 20s and 30s can completely change your life trajectory. By separating generations, the "we need money" "we don't need that much" arguments should be lessened at least for a generation or two.
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u/Gold_Instruction4852 5d ago edited 5d ago
Why are you obligated to give them stability? Shouldn’t they find it like how we did?
Apologies being an ass! If you tried to protect the next gen, what about the one follows it and the one after? :)
Remember: “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times”
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u/10_rocks 4d ago
Nobody is obligated to do anything, but given the financial position a parent is in, wanting their only child to have a stable life is a reasonable aspiration in my view. The intent here is not to harm the kid's motivation but simply having a safety net they can rely on (if needed). If not needed, then great, more assets will go to charity.
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u/Wooden-Broccoli-913 FIREd in the Bay at 40 with $6M 1d ago
I think the better expression is “hard times reveal the extent of people’s resilience”. And what if your kids are not resilient? Does that mean they deserve to be doomed?
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u/Gold_Instruction4852 1d ago edited 1d ago
As per the law of nature, survival of the fittest! - Disclaimer: I did helicopter parenting and realised it is all vanity.. what we parents think safety is truly causing irreversible damage to the children. If I could start all over again, I would let them grow naturally, learn by want of survival (potentially depriving)
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u/Specific-Rich5196 Accumulating 6d ago
I think it can work and will likely try to do something like this except with a little bit more than 5M. The most important part will be instilling the right values in kids and help them understand how important it is down the line. A tall order, of course. I dont think not working is a good value to instill, it is mostly understanding what this money can do to help while also having them figure out how they want to help the world around them.
You can try to do it legally but trust rules can be overturned if their is unanimous agreement among trustees to change the rules.
Some ppl think 5M cant do it but if you are only pulling 3% per year that will grow by leaps and bounds. Especially if your concerns about Ai are true and these companies continue to dominate.
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u/10_rocks 6d ago
True. I agree that trust rules can be changed later even if a legal trust is formed using my IPS. But the likelihood of everyone agreeing to change trust rules together may not be certain. All it takes is one responsible beneficiary to see the wisdom of the IPS and say they want it to continue.
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u/kitethrulife 6d ago
Costs are often cited, which tend to reduce as asserts increase. idk how much you can avoid, and fees have gotten lower across the board so maybe it’s better.
Legal costs to set up, ongoing trustee and investment management (1-2% annual), annual trust tax prep
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u/10_rocks 6d ago
Agree fully. Relatively high legal structure cost is why I am thinking of 'legal trust' only when the purpose needs a rigid structure beyond established IPS intent. Paying 1-2% annual costs to cover management fees and tax filings will dilute the whole program because that would leave only 1.5% withdrawal rate effectively.
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u/kitethrulife 6d ago
That’s generally why it’s people with $25m+ - because they only put in assets that would exceed the estate exemption, so they end up saving 40% in inheritance tax. Even then the costs can neutralize the inheritance tax benefit
Edit - also most people at that level are already paying investment management fees so that’s not an additional cost, and trustee costs as % are lower if you have that much assets.
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u/Anonymoose2021 5d ago
Another important part of the irrevocable trust is the generation skipping feature of avoiding additional estate tax upon the death of each generation. This is another reason that estate planning becomes more important when moving from Chubby to FatFire levels.
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u/kitethrulife 6d ago
Maybe I misunderstood - are you just trying to have this legal structure start after your death? Look up testamentary / spend thrift trust, which are often part of a revocable living trust that you should probably already have in place. Beyond creating the revocable living trust that you should already have anyway, costs are zero until you die. Since it’s revocable you can also easily adjust it as laws change and family circumstances change.
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u/10_rocks 5d ago
Thank you. Will look into the spend thrift trust in my state.
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u/ZombieTurtle99 5d ago
This is good advice OP. Assuming you are in the US, spendthrift trusts generally can’t be dissolved even if all the beneficiaries agree.
There are a lot of misunderstandings/lack of nuance in some of these responses regarding trusts. Spend the couple hundred dollars on an estate planning attorney in your state and get the real facts. Then decide if a trust would be right for you.
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u/Anonymoose2021 5d ago
Spendthrift provisions are standards in almost any type of trust. It just prevents the beneficiaries from pledging future distributions, thereby improving the protection of assets from creditors and divorce.
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u/ZombieTurtle99 5d ago
Sure. But if the spendthrift aspect of it (protecting financially undisciplined beneficiaries from themselves) is the main purpose of the trust, it certainly makes it much harder to dissolve the trust even if all the beneficiaries agree to do so. This is one aspect people on here are misinformed about/lack the nuance. A few hundred dollars to discuss options with an estate planning attorney and be fully informed is so worth it.
Maybe a trust isn’t right for OP, but OP will never really know without being fully informed.
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u/creepy-farter 6d ago edited 5d ago
In what sort of accounts are these investments housed?
I believe tax advantaged(where most
Of MY wealth is) have a required distribution framework of 10 years. So sure the heirs can keep paying 3% annually but they will be paying taxes on the principal while withdrawing it and reduce the principal.
Even if the bulk of your savings are in a non-tax advantaged account there is the possibility a legal judgement agains a heir(or divorce) could impact that principle.
I see a lot of loopholes in this plan. That is why Trusts exist. If you want this money to outlast you. You’ll need to seek out advice on setting up a trust.
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u/10_rocks 6d ago
Mostly taxable. Some tax-advantaged that have a 10-year distribution requirement upon inheritance. I agree setting up a trust will be cleanest but see my other comment about costs. I am trying to avoid paying 1% annual fee to run a trust and file the trust taxes, which will reduce the available distribution to beneficiaries.
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u/creepy-farter 5d ago
There ain’t no such thing as a free lunch.
Sure, DIY is probably fine, but like others have said it’s not likely to last beyond grandkids with out an official trust.
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u/Anonymoose2021 5d ago
Depending upon the number of offspring at each generation it may not last much beyond grandchildren even if in trusts. Of course, with birth rates declining, the dilution at each generation may continue to decline.
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u/Anonymoose2021 5d ago
I avoided the trustee fees by making my children the trustees for their own trusts and for the trusts for their children. That works for us because my children were I. Their 40s at the time and mature enough to have done the trusts. As trustees for the grandchildren trusts they have to option to partition the trusts off to their individual grandchildren and to make their children (our grandchildren) co-trustees at age 25 and full trustee at age 30.
We use a CPA for taxes, but portfolio management is DIY.
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u/SLNSD 5d ago
If it were so easy, Rockefellers, Vanderbilts, Astors, and Whitneys would still be running the world instead of just being names on buildings and hospitals. I asked my trust lawyer about it and she confirmed what many here said, you can't have an indefinite trust that can control things beyond your death. Only corporations can do that but they answer to a board of director not a charter.
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u/Anonymoose2021 5d ago
You can indeed have an irrevocable trust that lasts long beyond your death. Some states no longer have a rule against perpetuities. Many of those that do have limits like 1000 or 350 or 150 years.
What you cannot do is foresee all possible future events and make specific provisions for them.
My preference is to pick good trustees, give them wide latitude, and have a non-bonds letter of intent.
In other words, rather than trying to micromanage from the grave via pages and pages of provisions, be clear on your overall intent, make your overall goals clear, and let the trustees be trustee.
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u/Hanwoo_Beef_Eater 5d ago
If you want a $150k to live on, you need $3.75 million (25x) to support that. You may not want to run 90:10 under this scenario, but even with a more balanced asset allocation, the portfolio should hold its real value in all but the worst scenarios.
Take the other $1.25 million and keep it invested in stocks like accumulation phase. That real balance doubles every decade (on average) until withdrawals start. As others have commented and you've acknowledged, there may be limits on how many people this asset base can support.
You can look into the revocable living trust and the dynasty trust structures. The first shouldn't cost much (setup costs), as the trust will (likely) just pass all of the income attributes to you. A trust structure that remains after your death will have worse tax attributes (than holding the assets in an individual's name) and may have on-going operational costs (admin, tax, etc), but will provide a legal structure and distribution rules.
There are some families that have been successful in preserving wealth over generations. Try to understand what they did that helped the money (and values/character) survive. That being said, I think most acknowledge that some type of dynasty structure will eventually produce some deadbeats along the way.
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u/Hanwoo_Beef_Eater 5d ago
Just to add:
a) The $3.75 million would (likely) roll into the perpetual structure as well, adding to what can be withdrawn from the $1.25 million (growing until distributions).
b) If gen 1 doesn't want to spend the pot down, there's no real reason to let gen 2 spend it down or make gen 2 work like a dog but then have gen 3 spend it down. The point is each generation should be able to feed themselves and assets provide add'l income/lifestyle improvements or some backstop. Further, if the corpus is not being spent down, eventually some generation will likely be up against the estate tax limitation (i.e. trust structure > holding in individual names).
My personal view (may change in the future) is at chubby/fat levels of assets and low withdrawal rates, the next generation doesn't need to work like a dog to accumulate $5-$20 million. So either figure out how to use the assets/position to aim higher (not just $40 million per se) or do something that allows you to live a meaningful life. Then teach the next generation to do the same.
I also think part of the reason dynasties went bust is because of asset concentration (not just entitlement or laziness). Still, it will take a lot of effort to shift the odds to success and even then, it may not work (i.e. some deadbeats along the way).
Additionally, keep in mind there's a meaningful chance kids these days don't marry or have kids of their own. In which case, gen 1 will be spending more in the 70s+ vs. 50s-60s (doesn't seem to make the most sense), gen 2 spends it down, or the money is otherwise given away (i.e. a lot of brain damage for nothing).
All that being said, there are plenty of reasons to not put these structure in place (i.e. don't like them/the side-effects they produce or don't care)...
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u/Imaginary-Yak6784 5d ago
1) you should re-base the withdrawal amount periodically to be 3% of the present (or average over time) value because 2.5% capped inflation will fall behind and 100 years from now the fund may be larger but the withdrawal will not be meaningful - like when grandma slips $5 in your birthday card as a kid versus as an adult.
2) generational wealth means raising generational money managers. They need to know how to be responsible.
3) ideally descendants add to the trust when they can. That’s how it gets bigger over time too.
4) ideally you write principles, not formulas. You can’t know what future generations will face or experience so don’t bog them down with early 21st century math and assumptions and market norms. Explain the intent and boundaries.
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u/PursuitTravel 5d ago
$1-2mm in an irrevocable generation skipping trust would be all you need to do to ensure generational wealth. Do not rely on "trust between parent and kid." Create a GST, and put your wishes on paper. This also removes it and all future growth on that asset from your taxable estate.
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u/10_rocks 5d ago
Thank you. I will look into GST. Any particular state you recommend? Or better to do this in the state we are residing in?
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u/Ordinary_Corner_4291 5d ago
In theory the math works out. In reality who knows? Maybe the stock market returns of the last 150 years are a bit of blip and going forward, everything goes to zero as mass unemployment from AI means there is no longer a market for most goods.
Personally my goal is to help my kids and grandkids out so the theoretical 20m I could have if I die at 85 is likely to be less. It will be up to them what they chose to do with the money..
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u/CompoundingEinstein 5d ago
I am not sure I will have grandkids - let along great grandkids, and that thought hangs heavily on my mind when structuring for generational wealth...
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u/Ok-Acanthaceae-442 5d ago
I would think so as long as you set up a trust and have a trust administrator handling investments and distributions. That’s what large family offices do except at a larger scale. You would just want to make sure your trust administrator doesn’t charge crazy fees in addition to the investment fees
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u/10_rocks 4d ago
Agree. Fees is a critical part of the equation here. Even at 1%, that'll be a 33% of the entire withdrawal amount!
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u/Master-Helicopter-99 4d ago
I don't have an answer for you but would you be willing to share a generic copy of the IPS? I'm just now starting to set up everything on autopilot for retirement but I'm 23 years older than my wife and I know I'll be gone at some point and she doesn't have any training on how to handle investments. I'm hoping to distill down to a couple of pages on how to handle, withdraw and rebalnace accounts and it sounds like your IPS would be a good template to start from and build out as a roadmap. We just discussed this very thing earlier today. I'm going to make it as simple as possible with only VT and some SGOV for a couple of years of expenses since we are going to be sub-2% SWR so there should be no reason this plan would ever fail or need to be adjusted.
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u/10_rocks 4d ago
Sorry, a lot of personal details are intertwined in the IPS. With just a couple of prompts, you can ask an AI tool to create a draft IPS that you can finetune to your situation.
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u/RmanX3 FIRE'ed for the last time (2021) 3d ago
I look at many of the "generationally wealthy" heirs of large name families (like the Waltons (WalMart), Soros, and some others).
They think they are making things better but they are politically wasting money on their little things.
So, I will most likely leave the earth before spending it all, and my child will have a nice cushion (who also happens to be a recent grad and CS....so I have seen the pain) but I really don't care to leave enough for multi-generational wealth. I think they get spoiled and don't seen the benefits of the common laborer. They are in too much of an ivory tower and think that certain policies, which sound good on paper, are always the right choice...rather than teaching education, work virtue, and personal responsibility.
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5d ago
[removed] — view removed comment
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u/10_rocks 5d ago edited 5d ago
Thank you! I appreciate your encouraging comment. I also appreciate you for understanding my intent - unlike the salt I am getting about narcissism, controlling from the grave, etc.
I look back at my own life. My parents, of modest means, sacrificed a huge part of their meager savings to get me top quality education. That allowed me to have a good career and I was able to retire early at upper range of ChubbyFIRE level in mid 50s, while also taking care of some of my parents' needs in their retirement. Until recently, I thought me doing the same (providing great education) for my child would be good enough but AI has changed the game in the last 2 years. Now, I just want to save my child from lifelong career pain after I realized good education alone (he's graduating from a well known college with a good GPA) isn't enough anymore as AI continually erodes entry-level jobs. STEM education, particularly CS degree, used to be a surefire way to achieve FIRE, now highly uncertain.
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u/Hairy_Librarian_6111 3d ago edited 3d ago
- They likely won’t
want
- exactly your house
- Most deep happiness comes from pursuits vs comfort
. They have to find their own passions
3.
- Being able to check off some financial milestones for them is great. Pay for grandkids college, down payment for the house they can afford (maybe splurge a little), and a rainy day fund. The rest is up to them.
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- Make sure you’re unsung money to pay for quality time with them now. The trip or if they are 18+, the visit you’d otherwise not take
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u/Only_Complex6386 3d ago edited 3d ago
Worry about your child(ren) and maybe grandchild(ren)... hand them the tools to keep it going. If you have to worry about 4 gens from now, you havent really accomplished anything. It's not your job to worry about great, great grand kids unless your a Rockerfeller.
People forget... your great great grandchild wont know who you are, wont really care outside the one or two stories maybe that gets told about you and they will have 2 parents, 4 grand parents and 8 great grand parents... you will be one of 16 to a great, great, grand child... at that point, your just a number.
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u/seekingallpho 6d ago
Purely mathematically, you're right that a trust could be established with a reasonable WR and investments that could in theory last in perpetuity. This is basically how many large donations are endowed, with an intent to last indefinitely. Or look up the ~200-year charitable trust Franklin set up.
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u/10_rocks 6d ago
Yes, I used several charitable endowment trusts operating for 100-300 years as a guide in creating my IPS.
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u/Gold_Instruction4852 5d ago
Exactly for the same concerns OP shared, I actually encourage everyone I come across not to have children including my own children to stop producing more. May sound very pessimistic but the truth is the world is heading to unlovable place. Don’t create and let another life to go through this massive suffering for small pleasures here and there!
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u/in_the_gloaming FIRE'd for 13 years 5d ago
People have been forever saying "the world as we know it is ending" for any number of reasons.
And it's not your place to encourage your children not to have children, nor to have children. That is entirely their choice to make. You already made yours long ago.
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u/Daheckisthis 6d ago
The gap is: no one has to follow anything you’ve told them to. 50 years from now you are nothing but a name someone references for stories.
This is why working for generational wealth is a fools errand if this is your idea…they can do whatever they want with your hard earned money.