In this episode, Nate Scott unveils the blueprint for establishing and nurturing generational wealth. He stresses the importance of adopting a mindset focused on long-term wealth over retirement. Nate explains the need to acquire evergreen assets that can endure for generations, such as farmland, real estate, and businesses.
He also explores the significance of trusts in estate planning and advocates for the family office model. Nate suggests leveraging life insurance to create liquidity and facilitate the growth of generational wealth. He then ties these strategies back to biblical principles.
Takeaways:
- Mindset Shift: Prioritize long-term wealth over immediate retirement goals.
- Invest in Evergreen Assets: Acquire assets like farmland, real estate, and businesses that can be passed down through generations.
- Utilize Trusts and Family Office Model: Implement trusts and consider adopting the family office model to preserve and expand your estate for future generations.
- Life Insurance Strategy: Use life insurance to ensure liquidity and support the growth of generational wealth.
Episode Resources:
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LIVING WEALTH PODCAST
DOLLARS AND NONSENSE: EPISODE 226 TRANSCRIPTION
Nate Scott [00:00]:
Most people think they want to build generational wealth. They say they want to build generational wealth, but their actions reveal something completely different, probably because most people don’t know the practical steps the wealthy take to build their financial affairs that encourage generational wealth building. I’ll give you a hint.
It’s going to be different than saving all of your money in your 401(k). So in this episode, I’m going to dive into the three steps you can take to improve the odds of building true generational wealth that last much longer than just one generation. I’m Nate. I make sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.
Nate Scott [00:40]:
I think at the outset of this episode, it would be good to bring up some scriptural focus on what I really want to dive into today, which is generational wealth, how to build true generational wealth. And the first thing that came to my mind is this idea that we find in scripture, in the book of proverbs. “For as a man thinketh in his heart, so is he”. And we’ll get into this with the three steps. But I think a lot of people run into a problem just with their perspective. Like, the honest truth is, everything that you’re going to accomplish in your life starts with what’s going on in your mind.
Nate Scott [01:22]:
And if your mind is out of whack, if you say your goal is to build generational wealth, but your brain thinks about all these other things that don’t actually go down that pathway, you’ll never actually get it. So the truth is, the very first step that I’m going to dive into right now is that we really have to change how we think. And that’s a mission that I’ve been on in this show for the past, almost the entire time for the show, but especially in recent episodes, where I believe that a lot of the typical financial advice is really focused on helping people retire one day.
And I don’t think that’s necessarily the end of the world. And if your plan is to retire, or if you’re listening to this and you are retired, I’m not, like, judging you. I’m just merely saying that that path of retirement planning as the ultimate financial goal for everybody, that everyone here needs to plan for their retirement. And that’s actually the number one goal of money. If you have that mentality, it should be fairly obvious.
Nate Scott [02:26]:
It’s going to be difficult to truly build generational wealth, a legacy that’s going to last for quite some time. And I’m going to dive into why that is. So, just remember, “as a man thinketh in his heart, so is he”. If you’re thinking all the time about, I can’t wait to retire one day, don’t be surprised if that’s what you get, it’s maybe retiring one day, but you might not get other things.
And so we’re going to dive into that right now. And so I’ve got three main steps that I think everyone can take to really improve the odds of building generational wealth. The reality is, I think it’s like, what is the saying? Shirtsleeves to shirtsleeves in three generations. The reality is, it’s so rare for someone to actually build true generational wealth that lasts a long time.
Nate Scott [03:09]:
I understand that it’s rare. It’s very difficult to do. This is a big conversation that can last a long time with a lot of different angles to be taken at. So I wanted to choose three main steps that I think everybody could do that would improve their chances. But we’d have to meet together.
You’d have to meet with somebody to dive into your own personal situation and figure out what makes the most sense for you individually to really get from a 50% chance to a 90-95% chance of succeeding in this way. So let’s go ahead and dive in. The very first point I wanted to make is that, and this is kind of what I mentioned at the outset, you have to determine what you want the most.
Nate Scott [03:48]:
Do you want retirement the most, or do you want to build a legacy that will last for more generations than just yourself? This is the first question everyone has to ask. The first step in anyone saying, “Nate, I’d love to build generational wealth” will decide what’s most important to you. Because the honest truth is that the whole process of, quote, unquote, retirement planning and retirement in general is oftentimes the antithesis to generational wealth. In fact, if your entire life.
This is why I push back against the idea of retirement, because I think it’s unhealthy for a lot of people. Not the idea that one day you won’t be able to work and you need to be financially stable, secure, and independent to allow for that. But what I’m saying is retirement is seen as this idol that’s raised in our society. There’s this idol of retirement that we all go to work at our nine to five jobs, worshiping that idol, and we live our entire life, our entire working career, 40 hours a week for 30 to 40 years, worshiping the idol of retirement.
Nate Scott [04:48]:
And it’s a false idol, and it’s oftentimes ruthless. Now, if you are retired and retirement is on your agenda, I’m not trying to push judgment across it. I’m just merely saying that I think it’s a problem as a whole. The fact that maybe one day you want to leave the job you’re currently in and move on to do other things, that’s fine. I’m just saying, don’t worship the God of retirement. Don’t bow down before retirement.
But if you do, if you find yourself caught up in the herd from the day that you got your first job at age 20, age 22, your first real big boy job, and I mean, maybe if you’re an entrepreneur, you bypass that altogether, but nonetheless, you show up at the job and immediately you meet with the HR department who pops you into the 401(k) and says, yeah, everyone does this, right? Everyone saves money into the 401(k). We’ll match it.
Nate Scott [05:38]:
It’ll be there whenever you need it. For retirement, we offer this pension. These are all things that are like golden handcuffy style stuff that essentially is, if you slave for me, I will let you retire one day. That’s the idea. Even if you don’t like it, you should stick around here for the benefits. Those are called golden handcuffs, by the way. People slaving away at jobs they don’t like because the benefits are good. And if they feel like their hands are tight, that’s the golden handcuff idea.
Nate Scott [06:04]:
Like, if we treat our employees really well, they may not even want to be here, but if they have health insurance, life insurance, 401(k) match, pension programs, then they’re going to stay. And all of those things are great. But what I’m trying to bring up is that if your entire life is built that way, it’s going to be very difficult to build generational wealth because at the end of the day, the wealth was built for you to consume.
And the reality is you’re planning to leave at age 65. People are living much longer nowadays than they used to. People are not– back when retirement age 65 was created, and you don’t have to look very far to find this out, but the retirement age 65 was created back when life expectancy for the average male was not even 65.
If you go back to the 1920s, 1930s, when the conventional idea of retirement, which didn’t exist before that, of course you’d have wealthy people who didn’t have a job before that. But the idea that as you age, that you need to prepare to leave the workforce, in fact, you even go into more socialist countries where it really got started in Germany and it was actually, we need to make space for young workers to come in.
Nate Scott [07:14]:
So we forcefully kick out people once they hit age 65, we require them to retire. That was even the case here in America, in the land of the free, in the home of the brave, back in the don’t know how long it lasts. I should have looked it up before this episode, but you were required to retire at age 65. And some situations still have that.
Some more unionized-style workplaces have a mandatory retirement age. I know some pilots have to deal with that. Just as clients where you’re flying for this airline and they have a mandatory retirement age of 65, you can’t keep working for them even if you wanted to. You have to get kicked out.
Nate Scott [07:54]:
So this whole idea got started, by the way, back when people didn’t even live to age 65, on average, the life expectancy was like 62 or 63. Well, now the life expectancy is up at 77, 78, 79, and it’s continuing to creep up. So the chances are decently good that if you’re 65, you can live till age 90 or 95.
These days. I mean, of course, it’s very, very common. And at the end of the day, you’re going to have to consume your nest egg over time to survive as your main income source. So normally in normal retirement planning, most of the time you’re using mutual funds and retirement programs that don’t actually produce real income, by the way. So a retirement program does not produce income. What it produces is asset value.
Nate Scott [08:39]:
So, the value of the asset grows. Hopefully over time, your stocks and bonds and stuff like that, and bonds produce income. But like your typical stock, maybe your dividend and the SP 500 might be like one, 2% or something like that. So it’s a little bit of income maybe.
But for the most part, people are expecting to sell their shares from these programs to produce cash to live on. And the hope at the end of the day is that you don’t actually have to liquidate over time. The hope is that maybe the growth inside of the program will allow for you to sell it and still provide for, still leave it inheritance and so forth.
Nate Scott [09:18]:
But nonetheless, the entire mentality was based on liquidating and selling off assets to produce retirement income. So I’ve been on a long tangent just to simply say you have to choose. Is that the path I want, or do I want to go down a different path? And that goes back to a fundamental belief that we have here at living wealth and that I’ve really focused on lately is that there’s almost two paths in general for people to build wealth.
There’s what I call the empire path and the retirement path and the empire over retire mantra that I created was really saying, most people go down the retirement path and they hate their job. They’re there for the golden handcuffs. They’re there for the paycheck. They feel trapped by the paycheck, trapped by the benefits, and so they stay and they can’t wait for retirement because they don’t like what they’re doing.
Whereas the empire path essentially says, hey, we’re not even going to live our life and work with our money just to retire one day. We’re going to build a life that we don’t even need to retire from. That is our main goal.
Nate Scott [10:13]:
So, on the empire track, and I would say also the generational wealth track, your main goal in life is not to necessarily retire. It’s to build a life that you don’t need to retire from. Now, the reality is if you do that, by the way, it’s likely you’ll become wealthy enough to retire if you need to. That’s like the caveat here.
It’s if you get your mind off of retirement and onto building a life you don’t have to retire from, it’s likely that you’ll end up having enough wealth built just from doing that route as time goes on to retire. Of course, in fact, you’ll have way more than enough. We’re going to talk about that in the next few points, but the first step is to determine what you really want.
Nate Scott [10:59]:
If you really just want to retire, you don’t really care about leaving a legacy. Why are you even on this podcast, by the way? You don’t want to build generational wealth. That’s great. But if you do, you’re going to have to do things a little bit differently. You can’t just store up all of your money in retirement programs and think that it’s going to last for generations. It’s very unlikely that’s going to happen. We’ll talk about that in just a second too.
Nate Scott [11:15]:
So if you’ve decided that you want to go down what I call more of the empire pathway or the generational wealth pathway, building a life you don’t have to retire from, you’re probably going to be doing different things with money. That’s the moral of the story. So the second thing I wanted to say is that if you want to build generational wealth that’s going to last for generations, you need to buy assets that are likely to remain in the family for generations.
This kind of goes without saying, but I guess we should all say it, right? So if you’re going to build generational wealth, you want assets that are likely to stay in the family for a long period of time. I call those assets evergreen assets, assets that produce value right now and all the time into the future and are not something that has to be sold for it to produce value per se.
And you’ll see wealthy people buying these all the time, like Bill Gates owns, like the majority of the farmland in the United States now, which is ridiculous. But nonetheless, you find these types of assets when in generational wealth building situations, things like farmland or raw land or real estate of all kinds. In the world of real estate, for sure, especially if it’s professionally managed, businesses are huge evergreen assets, things that are going to continue after you pass away assets of those sorts.
Nate Scott [12:41]:
I like to think of it almost like this to make it easier. It’s likely that you will succeed building generational wealth if what you leave is actually a bunch of cash flow income being produced by the things that you leave in the estate versus just accounts that have money in them. So, if all you were to do is leave accounts that have money in them, it takes a lot to build generational wealth. In other words, hundreds of millions of dollars.
If that’s you, you’re going to build generational wealth whether you want to or not. It’s probably going to happen in a lot of ways. But for people like us, where we’re dealing in a much smaller amount per se of money than the mega rich, you have to understand that if you leave just cash in a bank account, or if you just leave even retirement programs, one of the big issues with leaving retirement programs and thinking it’s going to create generational wealth is, first off, they have to be liquidated.
Nate Scott [13:41]:
I don’t know if you knew this, but you have to liquidate the retirement programs over time. In retirement, by the way, for those of you listening, you have to start liquidating with required minimum distributions in your lifetime. But then whenever you pass away, there’s specific rules for how long your heirs have to liquidate the money because the IRS wants their tax money, you know, it’s been deferred this whole time.
They have to get their tax money, so they require you to sell them in order to produce tax revenue. So all that to say you want to leave, like, think about this. If I left $5 million in my estate, in retirement programs and mutual funds and things like that, it’s likely what’s going to end up happening is just they’re going to be liquidated and passed out to my kids. I’ve got four kids, so each of them is going to get like $1.2 million.
Nate Scott [14:32]:
And they’re just going to be kind of sitting in these accounts. They have to be liquidated to produce value to my kids. They’re not like assets that you could go visit the farm. They’re not assets that you go visit the business. They’re not assets that produce cash flow. They’re just kind of just there. It’s unlikely that those are going to last from generation to generation.
Nate Scott [14:49]:
But if you did the same thing, but you left $5 million of assets that are producing income of $500,000 a year, then essentially what you’ve left is this estate that’s producing to each kid $150,000 a year of income, plus the value that’s in the estate. Now, your chances of building generational wealth go up and up and up the more that you buy what I call evergreen assets.
Evergreen assets are assets that don’t have to be sold to produce value, and are things that can be passed down from generation to generation to generation. By the way, one more step to this. If you couple your evergreen assets with liquidity from life insurance proceeds, which is, of course, what we do at living wealth, with the infrared banking concept, and how to use life insurance policies as a banking tool, which I’m not even going to get into too much in this episode, really at all.
But if you leave evergreen assets that are producing cash flow and producing a lot of value, farmland, land, real estate, all these things that are much more generationally minded things, it would still be nice to have a whole bunch of liquidity for the estate to pay off debt and do all these different things.
And I really do believe that if you couple that with liquidity from life insurance policies in your own estate, then you can make a huge difference. Because then you essentially leave enough liquidity for them to take the death benefits received tax free from the life insurance policies and then go use those to buy more assets that produce more value.
Nate Scott [16:28]:
So you can create this ever increasing scaling up of the estate over time, which is really what you want to create generational wealth. If you’re going to create generational wealth, you can’t liquidate it during your lifetime. And you have to try to create a way for your heirs to not liquidate it in their lifetime.
Otherwise, it, of course, won’t be generational. The third thing I wanted to talk about, too, on this front, and the last one is that if you’re going to go down the generational wealth track, you’re going to need to plan out your estate by using trusts. And I talked about this. By the way, Ray Potit is the founder of our company, Living Wealth. He’s also my grandfather in law. And so I married his oldest granddaughter.
Nate Scott [17:12]:
That’s how I got into this business. I started in this business twelve years ago, it was through my relationship with my wife and their family business. And he passed away in 2023, March of 2023 last year. And we were dealing with his estate. And I did an episode. We can link to that episode. I think it may have been like episode 195, but don’t quote me on that. It’s somewhere in the 190s where we did an episode where we described what we were going through dealing with Ray’s estate.
Nate Scott [17:43]:
And in that episode, I describe essentially what I believe are two pathways to transitioning money upon your death. One of them is kind of the default way, which I call the asset distribution model. And the other one is what I will call the family office model. So I believe there’s kind of two routes you can take.
Whenever you pass away and you leave your estate, you can do kind of the default asset distribution model or the family office model. And the asset distribution is fairly straightforward. So, in the asset distribution, we go back to the $5 million in an account type of guy. I got $5 million at a brokerage account and retirement programs, and you pass away. And it’s pretty simple.
Nate Scott [18:25]:
In the asset distribution, all you do is say, okay, I’ve got three heirs, or me personally, I have four kids, so I got four heirs. I’m just going to liquidate this money or pass the money down equally amongst those four, and they are each going to go their separate ways. They’re going to take their 1.2 million each. They’re going to go do whatever they want with it.
And the only thing the estate was there to do was distribute the money, distribute the assets equitably. And that stands in a contrast to a lot of times, what the wealthy do, and a lot of times what the wealthy do is maybe they’ll have some money, go directly to heirs, but they actually keep a lot of things intact. And that’s the idea of the family office mentality.
Nate Scott [19:06]:
Now, I’m not saying that everybody needs to go open their own family office the way that the wealthy do. If you’re familiar with that term, the wealthiest of the wealthy have their own private family office with full time employees managing all of the assets of the estate. And that’s awesome. I’m saying that’d be awesome if it’s you, by the way, but it might not be you.
Nonetheless, you can have that mentality going into it that I want at least a big proportion of my estate to be intact. That’s how you create generational wealth, is keeping your estate intact through a system of trusts in some way. So a family office model doesn’t just exist to distribute the money after you die. It essentially says, we’re going to run the estate like a business after someone passes.
Nate Scott [19:51]:
So it’d be the idea, once again, like I said, instead of having $5 million left to your heirs and just distributed, you have a $5 million asset value of a trust that you and your heirs may be receiving income from the trust, but somebody’s actually running that trust like a business. And maybe your heirs are on the board of directors for the business and they’re managing it through that window, but maybe one of the heirs that says, I’m going to take on the management of this money and continue to invest it and grow this nest egg, all the while, I’m passing out income to my fellow heirs.
And this was more like, by default, what has to happen if you have a complex estate. So, by default, you start entering into the family office whenever you do have businesses, like Ray had multiple businesses in his estate, that you can’t just distribute the assets from those businesses. That doesn’t exist. You have to continue running these businesses, and the business produces profit, and that profit can be distributed to the heirs, but you can’t just liquidate everything.
And so the more you can create a family office style estate, the more likely it is that you’re going to create true generational wealth, which really means you have to keep the estate intact inside of trusts, and the heirs can receive benefit from the trust through income that it’s generating. But somebody is saying, we’re running this estate like a business, and we’re going to hopefully grow it so that it’s way bigger by the time that we die than what we’ve received. And you continually grow it, grow it, grow it, and you don’t spend the principal, you continue to add value inside of the business.
Nate Scott [21:28]:
And with that being said, another thing I love. So if you have this family office style, life insurance can once again come into play in a big way, because it is true that the bigger the estate gets, the more likely you’re going to run into a desperate needing of liquidity inside of the estate, whether that’s to pay estate taxes, which right now the estate tax window is like 24-25 million, something like that for a couple.
You don’t owe any estate tax on your estate until you get over $25 million. That’s right now in the year 2024. That’s expiring, by the way. So who knows what it’s going to be per se, unless changes are made. But it’s going to go back down to like I want to say, $11 million here in the next year or two.
Nate Scott [22:09]:
And because of that, you’re going to find way more people running into estate tax issues than ever before. And all of this being said, having life insurance, I just mentioned coupling life insurance policies. So like, if you practice the infinite banking concept, you are putting a lot of your liquid money into dividend paying whole life insurance policies maximized for cash value.
And then you’re leveraging those policies to buy evergreen assets, to buy assets that are going to grow in value and that you want to stay in the family forever. So, if you couple, like I already said, the evergreen asset with whole life insurance policies, the way that we teach you how to do, you can create this awesome estate where there’s a ton of liquidity from the death benefit upon your death, while also having a ton of evergreen assets that are producing value for the generational wealth you wanted to build.
So, while you are doing this thing of trust, you can also build it to where you say, okay, I want to use my life insurance proceeds. Like I’ve got all these evergreen assets in the estate and we’re going to run it like a business. But I want my life insurance proceeds to potentially pay for any estate tax that’s going to be owed or different things that may be needed inside the estate to manage it.
Nate Scott [23:20]:
But once those things are paid for, I want to use this liquidity to go buy policies on the next generation, which then means that there’s going to be a big death benefit on all the next heirs that they are going to pass down to the next kids. And you could have it built into this thing that, hey, the trust is going to open up policies upon my death, on my heirs, on my kids, which will be, they’ll be mature adults, of course, by that time, hopefully in their 60s and 70s.
But we’re going to use these death benefits and proceeds to buy policies on my kids, which are then going to leave death under proceeds for their kids, which they can use to buy policies on them. And then you can create this cycle through these policies where there’s a new death benefit every single time a generation passes away, coupled with the assets that you never wanted to leave the estate, and suddenly you have a true generational wealth building model to follow.
But it’s always easier said than done. I mean, this, of course, sounded so simple here. It’s going to be hard work. It’s not going to be necessarily easy, but it may very well be worth it.
Nate Scott [24:23]:
And that’s why I think that the generational wealth mentality is a natural endpoint for those who go down the empire path versus the retirement pathway. If you’re going to go down the empire pathway, you’re going to automatically start creating a more family office, evergreen, asset rich approach to wealth building that’s going to end up in a much higher likelihood of creating generational wealth.
