How to Manage and Preserve Generational Wealth

Preserving family wealth across multiple generations depends far less on investment performance than most people assume, and far more on communication, documentation, legal structure, and risk management. The old saying “shirtsleeves to shirtsleeves in three generations” reflects a widely observed pattern: a frequently cited industry survey found that a large majority of wealthy families lose control of their wealth by the third generation. That specific figure has been repeated for decades without fully transparent methodology, so treat it as a directionally reliable warning rather than a precise statistic. The underlying pattern, family wealth dissipating within two to three generations without deliberate planning, is well documented across many independent sources.

Why Generational Wealth Is Hard to Sustain

A few recurring causes show up across most family wealth failures: a lack of open communication between the generation that built the wealth and the generation inheriting it, heirs who are unprepared for the responsibility of managing significant assets or running a family business, fragmentation as wealth splits across more heirs and geographies with each generation, and simple poor planning, whether excessive conservatism that loses ground to inflation or poor tax structuring that erodes the estate unnecessarily.

Four Ways to Manage Generational Wealth

1. Make Family Transparency a Priority

A multigenerational plan doesn’t work if the next generation only learns the details after you’re gone. Heirs, regardless of their education or career success, often have little real visibility into the family’s financial position or long-term intentions. Providing direction while you’re able to, backed by a properly drafted will and the appropriate legal structures for every jurisdiction where assets are held, is the starting point, not an afterthought.

2. Document Objectives, Not Just Legal Structures

Trusts and legal documents establish the mechanics, but many of the practical decisions about how family wealth is actually used get made by heirs after your passing, often without the context you had in mind. Writing down your actual objectives, not just the legal terms, gives the next generation something to work from beyond a technical document. The goal isn’t just protecting the money. It’s giving heirs the resources and framework to build their own financial capability, whether that means funding education, growing the family business, or starting something new, rather than simply receiving a balance they didn’t earn and may not know how to sustain.

3. Use Trusts Deliberately, With Current Tax Rules in Mind

A trust is a fiduciary arrangement where a grantor funds the trust and a trustee manages the assets for the benefit of named beneficiaries. Families commonly use trusts to avoid probate, protect assets from creditors, structure a philanthropic legacy, and reduce exposure to federal and state estate tax. That last point, precisely, is where the landscape changed meaningfully heading into 2026.

What actually changed for 2026

The One Big Beautiful Bill Act, signed into law in July 2025, permanently set the federal estate and gift tax exemption at $15 million per individual ($30 million per married couple using portability) starting in 2026, indexed for inflation from 2027 onward. This eliminated a scheduled reversion to roughly $7 million per person that had been driving urgent “use it or lose it” gifting advice for the past several years. For most families below these thresholds, federal estate tax is no longer the primary planning concern it once was. For families above $15 million (or $30 million jointly), and for residents of the roughly 18 states and jurisdictions that still impose their own estate or inheritance tax at lower thresholds, active planning remains just as important as before.

This shift changes emphasis, not necessity. Trusts remain valuable for probate avoidance, creditor protection, and control over how and when heirs receive assets, regardless of estate tax exposure. But the specific tax-driven urgency that shaped estate planning conversations for the past several years has genuinely eased for families whose estates fall under the new federal thresholds.

4. Emphasize Proper Risk Management

Preserving wealth across generations depends as much on managing risk as on growing assets. Insurance, life, property, liability, business interruption, health, and umbrella coverage, is a core part of this, and one of the more specific tools worth understanding is the irrevocable life insurance trust (ILIT).

When a life insurance policy is owned personally, its death benefit counts toward the insured’s gross estate. When the same policy is owned by an ILIT instead, the proceeds generally fall outside the insured’s taxable estate. With the federal exemption now at $15 million per individual, this matters most for families whose estate, including any life insurance death benefit, would otherwise exceed the new threshold, or for those in states with separate, lower estate or inheritance tax exemptions where an ILIT can still meaningfully reduce exposure.

This kind of multi-generational thinking is central to Ridgewood’s own investment philosophy: a long-term, patient approach built around multi-decade compounding rather than short-term performance chasing. It’s also why intergenerational planning alignment is one of the specific components of Ridgewood’s Wealth Architecture & Governance work, alongside the retirement, liquidity, and tax coordination that a growing family balance sheet typically requires.

Where This Requires More Than a Financial Advisor

Trust drafting, will preparation, and specific tax filings are legal and accounting work, not investment advisory work. A fee-only fiduciary advisor can help coordinate the overall strategy, model the financial impact of different structures, and make sure the plan reflects your actual goals and risk tolerance, but implementing trusts and updating estate documents requires a qualified estate attorney, and tax-specific questions should involve a CPA familiar with current estate and gift tax rules.

If you’d like to talk through how these pieces fit together for your own family, Ridgewood offers a complimentary, no-obligation conversation to walk through your specific situation.

Frequently Asked Questions

What is the federal estate tax exemption for 2026?

The federal estate and gift tax exemption is $15 million per individual, or $30 million for a married couple using portability, starting in 2026. This was made permanent by the One Big Beautiful Bill Act signed in July 2025, and is indexed for inflation starting in 2027.

Do I still need a trust if my estate is under the new $15 million exemption?

Often yes. Trusts provide benefits beyond federal estate tax reduction, including avoiding probate, protecting assets from creditors, and controlling how and when heirs receive assets. State-level estate or inheritance taxes, which can apply at much lower thresholds than the federal exemption, are also a common reason to maintain trust planning even below the federal threshold.

What is an ILIT and why do wealthy families use one?

An irrevocable life insurance trust owns a life insurance policy on the insured’s behalf, so the death benefit generally falls outside the insured’s taxable estate. This is most relevant for families whose total estate, including life insurance proceeds, would otherwise exceed the federal exemption, or for those in states with their own estate or inheritance tax.

Why do wealthy families lose their money by the third generation?

The most commonly cited causes are a lack of communication between generations, heirs who are unprepared to manage significant assets or a family business, fragmentation of wealth across more heirs and geographies over time, and poor tax or investment planning. This pattern is widely observed, though the frequently quoted statistic behind it comes from industry survey data rather than a rigorously documented academic source.

Related Reading

• OBBBA in 2026: What Truly Matters, and What Doesn’t
• Estate Planning for the Affluent: A Holistic Approach to Wealth Preservation

About the Author

Ken Majmudar, CFA, is the Founder and Chief Investment Officer of Ridgewood Investments, a fee-only fiduciary registered investment adviser based in Springfield, New Jersey. He has been investing since 1992, with a focus on long-term value investing for high-income professionals, business owners, and multi-generational families.

Disclosure

This article is for general informational and educational purposes only and does not constitute investment, legal, or tax advice, and does not take into account any individual’s specific financial, family, or estate circumstances.

Ridgewood Investments is a registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. Trust structures, will preparation, and tax filings require qualified legal and tax professionals; Ridgewood Investments does not provide legal or tax advice.

Estate and gift tax figures referenced in this article, including the federal exemption amount, reflect the One Big Beautiful Bill Act as of the publication date and are subject to future legislative or regulatory change. State estate and inheritance tax rules vary and are not addressed comprehensively here.

Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal.

Please consult with a qualified estate attorney, tax professional, and financial advisor before making decisions related to trusts, wills, or estate planning strategy.