How to Structure Wealth for the Next Generation

The creation of significant wealth is an achievement. Its preservation across generations is a different — and arguably harder — challenge. Studies consistently show that the majority of family wealth is dissipated by the third generation. The saying "shirtsleeves to shirtsleeves in three generations" exists in virtually every culture, reflecting a near-universal pattern: the first generation creates; the second generation manages; the third generation spends.

Understanding why this happens — and how to structure wealth to defy the pattern — is the foundation of multi-generational wealth planning.

The Generational Wealth Planning Framework

It helps to think in terms of three distinct generations, each with different roles and challenges.

Generation 1 (G1): the wealth creator. This generation built the business, the portfolio, or the career that generated the family's wealth. Their instincts are entrepreneurial and often highly personal — the wealth is inseparable from their identity and their working life. The primary planning priority for G1 is wealth protection and transfer: ensuring that what they have built is not eroded by tax, poor health decisions, or avoidable estate planning mistakes.

Generation 2 (G2): the steward generation. G2 inherits or receives the wealth from G1. They did not create it, but they are close enough to the source to understand how hard it was to build. The G2 challenge is one of stewardship: managing the wealth competently, making it work harder, and planning for their own longevity and succession. G2 also faces the personal challenge of developing their own identity and career outside the shadow of G1.

Generation 3 (G3): the heritage generation. G3 — the grandchildren and beyond — may have grown up with significant resources and no memory of the struggle required to generate them. The risk of dilution (wealth divided among more family members), dissipation (poor financial decisions), and disengagement (no connection to the family's financial legacy) is greatest at this generation.

Effective multi-generational planning works across all three generations simultaneously, creating structures and governance that serve G1's immediate needs while building the framework for G2 and G3.

The Structural Toolkit

Trusts. A properly structured discretionary trust holds and manages assets for the benefit of family members across multiple generations. Trust assets are outside the taxable estate of the settlor (if settled with proper seven-year planning or prior to a terminal illness) and protected from the beneficiaries' own creditors, divorcing spouses, or poor financial decisions. A trust does not prevent access to capital for genuine needs — the trustee can make distributions to beneficiaries — but it provides a protective buffer. Jersey and Guernsey trust law permits trusts to last for 125 years, making them genuinely multi-generational vehicles.

Family Investment Companies (FICs). The FIC provides many of the income accumulation advantages of a trust — income taxed at 25% inside the company rather than 45% in a trust — without the periodic charges and administrative burden. Shares are divided among family members, allowing controlled economic participation by G2 and G3 while G1 retains voting control. The FIC is discussed in detail in our dedicated guide.

The family bank. The "family bank" concept uses the trust or FIC as a lending vehicle rather than a gifting vehicle. Instead of giving capital to family members — which is immediate and irreversible — the family bank makes interest-free or low-interest loans. A G2 child who wants to buy a first property can borrow from the family bank; a G3 grandchild who wants to start a business can access capital via a loan. The loan is repayable in principle (though the expectation may be that it is eventually forgiven), creating accountability and a framework for conversations about how family capital is used.

The family bank approach has two advantages over outright gifts: first, the loan sits outside the borrower's estate for IHT purposes until it is forgiven (at which point a PET is made); second, it creates a structure for governance discussions rather than simply transferring resources.

The Governance Framework

Structural vehicles — trusts, FICs, holding companies — are necessary but not sufficient. Without good governance, even well-structured family wealth tends to fragment over generations. The governance framework provides the rules and processes by which the family makes collective decisions.

The family charter. A family charter (also called a family constitution) is a non-legally binding document that sets out the family's shared values, purpose, and governance principles. It might cover: the family's investment philosophy and approach to risk; the criteria for family members to access capital from the family bank; the governance of any family business; the conditions under which family members can become directors or trustees; and the process for resolving disputes. A well-crafted family charter is the result of genuine family discussion and reflects consensus — it is not imposed from above.

The family council. The family council is a regular forum — typically annual, sometimes quarterly — at which family members across G1, G2, and G3 come together to discuss the family's financial affairs. This might cover investment performance, property strategy, trust activity, philanthropic initiatives, and any proposed changes to the family structure. The family council keeps all generations engaged and informed, reducing the risk that G3 inherits assets they know nothing about.

The succession plan. Who takes over the governance and management of the family's assets when G1 is no longer able to do so? The succession plan identifies the individuals who will become trustees, directors, or family council chairs in the future. It also identifies any gaps — G2 members who lack the skills or inclination to manage the family's investments, suggesting the need for professional management or adviser relationships.

The education programme. Many families invest in financial education for G2 and G3 — not simply in the sense of school or university, but in the sense of deliberate exposure to financial concepts, investment decision-making, and the history of the family's wealth. Some families involve G2 and G3 in investment committee discussions as observers before they take on formal governance roles. This preparation reduces the shock of inheritance and increases the probability of competent stewardship.

The Family Office Question

At what level of wealth does a dedicated family office make sense?

A single-family office (SFO) — a dedicated entity employing staff to manage all aspects of a single family's wealth — is typically only cost-effective for families with £50 million or more in investable assets. The fixed costs (salaries, compliance, office space) are substantial.

Between £10 million and £50 million, a multi-family office (MFO) — a firm that serves multiple families with shared infrastructure — is typically more cost-effective. The MFO provides many of the same services (investment management, tax planning coordination, trust administration oversight, concierge services) without the full cost of a dedicated operation.

Below £10 million, a well-coordinated team of specialists — a financial adviser, a tax solicitor, an accountant, and a trust company — working under a unified brief provides most of what is needed without the family office overhead.

The decision is about value, not status. The right structure for managing £5 million of family wealth is not the same as for £100 million, and getting the governance right is more important than the label attached to the arrangement.

Common Failures

Understanding why multi-generational wealth fails is as important as understanding how to preserve it.

Tax inefficiency. Failure to plan the estate means that IHT, CGT, and income tax erode wealth at each generation rather than being mitigated through legitimate planning. A 40% IHT charge on each generation dramatically reduces the compounding of wealth over time.

Governance failure. Families that never discuss money — where wealth is treated as a taboo subject — pass assets to G2 and G3 who are wholly unprepared to manage them. Good governance is built over decades, not designed the week before death.

Concentration risk. Families that hold all their wealth in a single business, property, or asset class are vulnerable to a single shock. Diversification across asset classes, currencies, and geographies is essential for multi-generational resilience.

Trust breakdown. Multi-generational wealth requires multi-generational trust — among siblings, between generations, and between the family and its professional advisers. Family disputes, divorce, and business disagreements can fracture governance structures rapidly. The family charter and family council provide a framework for managing these conflicts constructively.

Important Considerations

Multi-generational wealth planning is a long-term, evolving process. The structures and strategies that are appropriate today may need to be revised as tax laws change, family circumstances evolve, and new generations become involved. This article provides a general framework and does not constitute tax or financial advice. Always seek qualified independent advice from advisers experienced in multi-generational wealth planning. Values and goals evolve across generations; revisit your planning regularly.

How Global Investments Can Help

Global Investments works with families at every stage of the generational wealth journey. Whether you are G1 planning the first transfer to the next generation, or a G2 family that has inherited significant assets and wants to structure them properly, we provide a coordinated approach that covers investment strategy, trust and FIC structures, governance, and succession planning. We can also connect you with specialist family office services where appropriate. Contact our team to arrange a private consultation.