My wife and I are financial successful, brought on through hard work, she as a doctors and I an executive/consultant/entrepreneur have amassed a nice nest egg through our incomes and investments over the year. As a result of our personally developed wealth, we have decided not to touch any family money that we could have thus far, but instead give it to the next generation.  

So why, instead of giving this money to ourselves have we decided to give this money to the next several (hopefully) generations? While I don’t want to turn this into me pontificating about something religious or cultural, purely for context on the Legacy Fund I will share that I am Jewish; and over the last 5000 plus years, the Jews have been persecuted, expelled from territories, killed, enslaved, and had whole bunch of other heinous things happen to us.  Many other minority groups, I am sure, can understand how this can affect one’s perspective on life and money.  History has taught me that there is a lack of permanency. I believe many of my money philosophies may be encoded in my DNA. That aside, the lessons taught to us by our Jewish heritage and ancestors have influenced our decisions around money and the Legacy Trust allocation to our son.  My wife and I feel a duty to pass along lessons like the ones we were taught, and wealth, to the next generation.

How have we developed wealth over time? Myself and wife’s family especially (but really Jews in general)  have two attributes that many other families don’t – an innate ability to suffer and a willingness to work exceptionally hard. My wife and I have also been willing to sacrifice certain luxuries that go well beyond the norms of an upper middle class lifestyle, for the next generation; as a result of our money lenses being influenced by our Jewish heritage. One of the teachings the we have learned – your freedom can be taken from you one day so you better have the money to escape, the money to buy your way out of a problem situation, and an education in case you get caught and need to leverage your skills for safety.

Many people start investing money in their 30’s when they have a family.  They put money into their 401k here and there and over time that money compounds and they are left with a nest egg upon retirement.  To be honest, most people have no retirement, but bear with me.  Lets say a person at age 35 without a Legacy Fund invests $10,000 per year over a 30 year period for retirement at age 65 and returns 7% (a fair estimated outcome of a half decent performing fund).  At age 65 the fund will be worth $1,000,000. This is an appealing outcome to many middle class Americans.

The premise of the Legacy fund, however, has been built on the following philosophy. Let’s say a grandparent who had just enough money and forethought to invest $10,000 for their grandkids before their grandkids were born, but around the time their kids were born, anticipating that one day their kids would have kids of their own.  As a result of this forethought, the money would have 95 years to compound – 30 years for their baby to grow up and have a kid of their own plus 65 years for that kid to get to retirement age.  Let’s also assume they put in no additional contribution.  By retirement, that account is worth $6,186,697 (assuming a 7% interest rate).

Now let’s look at what happened with my son’s legacy fund.  The fund, around the time my son was born, was worth over $700,000.  Because of the principals my wife and I have been taught through our families plus years of education and studying, hopefully; unless there is an emergency, we will never have to take a nickel of that money.  My wife and I were taught by our families to get an education, work hard in school, earn a large income, max out our 401k, save 20% of our income, save at least enough money to cover our expenses for 30 years in retirement assuming a 4% withdraw rate, 3% inflation,  and 7% interest, and don’t retire until we have at least 25x expenses.  As a result of this $700k investment, this Legacy Fund will be worth $42-$46 million dollars by the time my son is 65, assuming 7% compound interest.  That’s the power of compounding.

Many of you might be thinking, “their son is going to blow the money.” The account is not in my son’s name, yet. By the time my son is capable of managing this responsibility, the account will be a living trust with rules indicating how it is to be spent. His mother and I do not want him touching this fund, unless it is absolutely emergent, before he turns 65. But, because of the level of wealth we will have developed in the fund by the time he reaches retirement age, if he wants to take half of the dividends the fund produces to make his life easier or do philanthropic work, as long as the other half is continuing to be reinvested, he will be allowed to do that.  That fund should be kicking off around $2 million a year in dividends/cap gains so taking half of that to have a nice time and do some good in this world is fine with me.  But, I want him going into this with my, my wife’s, and our ancestor’s mindset – forgo some luxury now, for the next generation.  His kids and grandchildren will be able to access this money and I want it to continue to grow and be passed down.  Teach them financial literacy, allow for them to take half of the dividends in distribution but ensure that the fund continues to grow for our future generations.

We, our parents, and our grandparents, have decided to suffer (the latter generations especially) and forgo luxuries and save for our progeny.  We are instilling values of hard work, good citizenship, living a reasonable lifestyle, enjoying life, making good memories with family, and continuing to let that fund grow, in our son.

And here is my advice to my son and everyone else interested in building a Legacy fund.  Do the same thing. For my son, act as if that money doesn’t exist and start your own Legacy Fund for the next several generations.  Let’s have multiple funds compounding.  The best part about it is you get to dream with the next generation about what they can do with the money.  Will they let it compound? Take dividends out when they are older for Philanthropic use? Teach them the skills they need to not need to withdraw from the fund, but let them know it’s there if they need it.  Teach them to work hard and live reasonable lifestyles, not overspending.  Teach them to care about others.  My hope for my son is that he teaches his children and grandchildren the lessons I have taught him about money and the lessons my wife and I have been taught by our ancestors, so they can teach their kids and so on.  Let’s build a legacy.  Let’s think several generations down the road when planning our finances, and not just consider retirement.