Random musings...generational wealth...
Bild von Gerd Altmann auf Pixabay
Recently I've discovered the concept of generational wealth. It's actually something that most families think about, but seems more along the lines of, buy a house, pass it to my heirs after I'm gone. There's really no building of wealth. So the more I look into it...mostly YouTube...I realize that the source of that generational wealth is either the father, mother or both. The problem is succession. Who takes over when I'm gone? Is the one I choose the right one? Are we keeping the acquired wealth only for descendants carrying the family name, or for all descendants? Personally, I think it should be available to all decedents. I don't really need to rule the family dynasty. I don't need to be the only one building for future generations. It is enough to be the source of the idea.
Everyone who provides tips for building wealth seem to emphasize not doing it alone. And really, what do rich families have in common? Well, the family. It may have all started with one member deciding to build for themselves and then pass it on to their heirs. Maybe from there, it evolved into a family enterprise. I have no idea, but I imagine it happened something like that.
Well I think I may have discovered a solution to the problems of participation and succession. It would be a way for the whole family to get involved. In the beginning, it would require a bit of discipline, especially for non-wealthy families. I don't know if it would work, but here it is. The idea is to start small
Disclaimer: There is a need to choose the right state, because each state will probably provide different advantages. Mainly legal, I guess.
The high level structure we're aiming for is as follows.
- The family's governing entity. An entity where the adults of the family have a say.
There are basically two entities that fulfill this role. That would be the cooperative and the non-profit corporation. I lean towards the non-profit corporation.
Initially, this entity has only one responsibility and that is family governance. It should not generate business profits, itself.
Family members would have access to membership, which gives them a vote for decisions needing a vote. They would have a voice. It's a democratic process, I guess.
Members may be required to pay membership dues in the beginning, because the entities have running costs, even when there's no business income.
- The economic entity, provides economic participation opportunities for family members.
This takes the form of a corporation (c-corp). This would be set up as the family holding.
The idea is to divide the shares into two groups, voting and non-voting. All shares with voting rights will be held by the governing entity. This gives the whole family control. Non-voting shares may be purchased by family members. Only members of the governing body will be permitted to buy shares, or, if you will, invest in the family enterprise, or participate economically. They keep those shares even if they give up their membership. If they give up their membership, they can’t buy anymore shares. Buying shares will require membership.
The corporation has it's own governance, the Board of Directors, corporate officers, CEO, share holders, etc.. The family's governing entity has all voting rights and therefore, may have a large influence over who gets to be on the Board of Directors. This would most likely be family members anyway, with or without voting rights.
The whole point is, it's family owned and controlled.
Those are the two core entities of the structure. Now the family corporation can invest in other profit generating companies.
If the family isn't already wealthy, it will need to acquire the necessary funds. To set up the two entities, we'll need, I guess, between $10000 and $30000. Running costs may be, I guess, between $2000 and $10000. To keep the startup costs down, the family can use AI to come up with a draft, which includes their vision. Then the business lawyer would not have to begin from scratch, saving the family a large chunk of the initial costs...hopefully.
The big question is how do the not so wealthy come up with the money to start the structure and make a large enough initial investment. Well, let's say we have a family of five working adults..the more the merrier. If each member saves 200 a month for five years, then that would result in $60000 for startup and initial investment. It may require them to reevaluate the things they otherwise spend money on.
There should even be enough in the corporation for investing in whatever it needs to invest in. In the beginning it may just be a brokerage account.
So we know that a corporation generates double taxation. The corporation is taxed on it's profits. This is because it's a taxable entity, contrary to a partnership, where the partners are directly taxed. Each shareholder will be taxed, because they are also taxable entities, therefore, each investing member will be responsible for their own tax strategies.
This is the structure I imagine a family could get behind and keep for many generations. Of course the founding documents and bylaws must be constructed so as to fuse the entities into one.
Interesting enough, it seems to be generic enough to be useful for other communities, like a church congregation, a small town and such things.
Another disclaimer: Just random musings. ;)