6 building blocks for creating and preserving generational wealth

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Building a legacy is about more than just financial success. Wealth can, and should, be a powerful tool to impact future generations positively – not only in the traditional financial sense but also by passing down values, principles and a shared sense of purpose. A well-constructed legacy is grounded on intentional planning and strategic thinking, ensuring wealth continues to benefit and guide future generations.

‘Creating a legacy of meaningful wealth means going beyond the numbers; it’s about instilling purpose and responsibility, and preparing your heirs to be thoughtful stewards of their inheritance,’ explains Tracy Muller, Head of Advice and Philanthropy at Nedbank Private Wealth. She shares some fundamental building blocks on which to build your legacy of meaningful wealth.

Define what ‘a legacy of meaningful wealth’ actually means for you. A legacy of meaningful wealth should go beyond financial stability. It should also embody the values and beliefs that you want to shape your family’s future,’ Muller explains. As such, any successful generational wealth plan needs to start with a clear understanding of what a legacy of meaningful wealth means for the family, focusing on values such as integrity and responsibility, as well as sustainable financial well-being.

Diversify your investments strategically. While the South African equity markets have performed relatively well in recent years, strategic diversification remains an essential part of long-term wealth creation and preservation. Local economic volatility and uncertain currency movements make it essential to invest in international assets to hedge against local economic risks. ‘International investments allow you and your family to explore some opportunities that aren’t readily available locally,’ she explains.

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Establish robust estate and tax planning strategies. Effective estate planning is critical for preserving wealth and ensuring a smooth and cost-effective transfer between generations. Structuring assets appropriately (eg through using a trust and by ensuring you have a properly drafted will) can prevent legal conflicts and potentially minimise taxation, thereby safeguarding family wealth for the future. In South Africa and Internationally, inter vivos discretionary trusts still have a role to play in succession planning for South African tax residents, within the parameters of the complex tax environment.

Ensure adequate insurance. Insurance – both long-term and short-term – plays a vital role in preserving family wealth. Life (or long-term) insurance provides a secure income for financial dependents and can be a lifesaver during the often-protracted estate execution process when your money is tied up and unavailable to your loved ones. Disability insurance and income protection are invaluable if you can no longer earn an income. For families with substantial assets, short-term insurance is much more than just a grudge purchase – it’s a key component of a well-considered financial plan that can act as a buffer against unforeseen events that could disrupt financial stability like a fire or theft.

Create a family constitution or charter. There is a perception that this is necessary only for family-owned businesses, but it is an excellent way of detailing the family’s shared values, mission and goals for overall wealth management. It should include guidelines for decision-making and conflict resolution as well as defined protocols for managing family assets. ‘A family charter is invaluable in terms of preserving wealth and ensuring unity,’ Muller says. ‘It’s a tool you can use to build alignment and ensure that everyone understands that they are not just inheriting money – they’re also part of shared family values, goals and ideals.’

Cultivate financial literacy across generations. Financial literacy is essential for sustainable wealth preservation. Educating your heirs on money management, investments and the values behind family wealth can help prevent the ‘3-generation rule’ of wealth dissipation from coming true for your legacy. ‘The 3-generation rule argues that wealth is typically lost by the end of a family’s third generation,’ she explains, ‘but by involving your children and grandchildren in financial discussions and making sure they learn the principles and values of true wealth generation and preservation, you can equip them with the skills to keep on growing and protecting wealth.’

Building and preserving a legacy of meaningful wealth requires more than financial expertise; it demands a thoughtful, strategic approach that emphasises values, education and adaptability. ‘A legacy of meaningful wealth is about creating a foundation that endures,’ Muller concludes, ‘and empowering future generations with both the means and the mission to steward that wealth in a meaningful way.’