How to create lasting wealth for your family

Question: I have built up a substantial set of assets and have no debt. How do I structure my finances to create long-term wealth for my children and grandchildren?

Answer: Getting the right structures in place can make a significant difference. You want to build family wealth that lasts for generations instead of disappearing through taxes and bad decisions a generation later. I strongly recommend that you work with a certified financial planner, as there are often a number of moving parts. To make that conversation more productive, here are the core principles I typically use when structuring multigenerational wealth.

Diversify

Avoid concentrating your wealth in a single asset class. Aim to spread across property, equities and cash (and, where appropriate, alternatives). 

Diversification should also be geographic: for many people, keeping roughly 25% to 45% of assets physically offshore should provide valuable currency and political risk diversification.

House your assets in the right vehicles

Holding everything in your personal name is rarely the most efficient way to pass money down. The right wrappers can reduce tax drag, simplify succession and protect beneficiaries from themselves. But every vehicle has trade-offs, so choose them carefully.

1. Trusts

Trusts are popular for multigenerational planning because they are separate legal entities that can continue after your death. They’re a good home for assets that will grow over time and can offer powerful estate-planning benefits. 

However, trusts are generally taxed at higher effective rates than individuals – and you give up direct control. A trust is not your alter ego; trustees must act collectively. If a majority (often adult children) want to pursue a course you don’t, that can be stressful. Choose trustees carefully and make sure the deed and letters of wishes are clear.

2. Retirement funds

I’m a big fan of retirement funds for multigenerational planning, especially when you want to provide ongoing income to children or grandchildren. The drawdown limits help to prevent rapid depletion of the capital. 

Retirement fund assets sit outside your estate for estate duty purposes, growth within the fund is tax-free and income is taxed in the hands of the recipient at their marginal rate (which may be low for minors). 

3. Sinking funds 

A sinking fund is an excellent vehicle for building long-term, multigenerational wealth. Inside the wrapper, interest and other income are taxed at the life insurance rate (currently 30%), and the effective capital gains tax (CGT) rate is 12%. 

On death, there is no CGT trigger inside the wrapper, as CGT generally arises only when withdrawals are made. That makes it a powerful tool for managing tax over time and preventing capital leakage. 

These structures are also my go-to vehicle for offshore investing. A spouse or your children can take over the policy, avoiding CGT “leakage” at transition, although the value is still included in your estate for estate duty calculations. 

Sinking funds can house a wide range of underlying assets, from cash-type instruments to diversified investment portfolios and direct shareholdings.

Structures are only half the story. Make your intent explicit with a concise letter of wishes. If there’s a risk of addiction, reckless spending or spousal pressure, design for it. Use vehicles that pace access, require co-signatures or route distributions via trustees who can say “not yet”.

Gather a skilled, conflict-resistant team around you, including:

• A certified financial planner to coordinate asset allocation and cash flow;
• An estate attorney to draft deeds and wills that actually work; and
• A tax professional to model scenarios before you move assets.

The cost of a good structure is small compared with the waste incurred by a bad one. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za Send your questions to kenny.meiring@sfpwealth.co.za.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.