Preserving wealth is often more complicated than families expect, which can shatter the hope of generational affluence. The author, in this brief article, considers the issues.

The following article comes from Bill Smith, who serves as president and CEO of the Trust Company of the South. It addresses the tough task of preserving wealth across generations. The editors are pleased to share these opinions; the usual editorial disclaimers apply with views of guest writers. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

As America stands on the precipice of the largest wealth transfer in history – an estimated $30 trillion from baby boomers to younger generations – the idea of inherited wealth inspires both anticipation and apprehension. For many families, the dream of generational wealth often clashes with the harsh reality that preserving it can be far more complex than expected. Without careful planning, education, and communication, even enormous fortunes can disappear in just a few generations.

Despite the impending “great wealth transfer,” statistics show that oftentimes wealth doesn’t last through generations: 70 per cent of wealthy families lose their wealth by the second generation and 90 per cent by the third. The reasons for these losses are multifaceted, ranging from unforeseen healthcare costs to poor financial management, family disputes, and economic downturns. Families that are intent on preserving their wealth long-term must employ strategies that combine careful financial planning with values-driven education.

Why wealth disappears
Healthcare expenses alone pose a significant threat to even the most robust estates. For individuals with employer-sponsored insurance, healthcare costs can still exceed $7,000 annually, and long-term care or nursing home fees often deplete savings at an alarming rate. Additionally, extravagant spending, mismanagement, and internal disputes can quickly erode what was once thought to be untouchable wealth. Take the Vanderbilt family, for instance: once among the wealthiest in America, the family saw their fortune dissipate within three generations, largely due to unchecked spending, lack of investment in income-generating assets, and the absence of financial planning.

However, the threat isn’t just about costs and conflicts. Many families lack the foresight to implement estate planning strategies early, often delaying critical decisions about gifting, trusts, and tax-efficient transfers until it’s too late. This can significantly limit their options and increase their exposure to tax liabilities.

Proactive steps for preserving wealth
High net worth families who avoid generational wipeouts tend to take a proactive approach to financial planning. Here are some key practices they adopt:

1. Early and consistent gifting
Many high net worth families make annual exclusion gifts – small, tax-free transfers to heirs ($19,000 per recipient in 2025) - but are unaware they can also pay tuition and health care expenses for family members if the payment is made directly to the provider. A best practice would be to make annual exclusion gifts at the beginning of each year, and early in the gifting cycle for the grantor to allow these gifts to appreciate, further increasing the value of the transfer to family members. Gifting as early as possible allows the gifts to grow outside the grantor’s table estate for a longer period. 

2. Trust structures
Trusts remain one of the most versatile vehicles for wealth preservation. Spousal Lifetime Access Trusts (SLATs) are popular vehicles for taking full advantage of the current elevated estate exemption ($13,990,000 in 2025) due to sunset in 2026 absent of any new legislation. Structuring trusts as “grantor” trusts provides additional benefit, shifting the income tax burden to the trust creator and allows the trust to grow tax free. Making use of the Generation Skipping Transfer Tax (GST) exemption can preserve trust assets up to that exemption, and all those assets appreciate too, from estate taxes in perpetuity. Understanding a trust’s design, whether trust assets are includable in the beneficiary’s estate, for example, can also help inform decisions around liquidity for living expenses and taxes.

3. Income tax planning
Understanding and optimizing the income tax implications of asset transfers, whether the gifts are to charity or to family members, can result in significant savings. Techniques such as gifting appreciated securities to charity or swapping out low-basis assets in grantor trusts to allow for a step-up can minimize future capital gains taxes, enabling more wealth to remain intact for heirs.

4. Institutional-level discipline
Many families approach wealth much like nonprofit endowments: spending only a sustainable amount – typically about 4-5 per cent annually – while allowing the remaining principal to grow. This disciplined mindset, alongside clear spending plans and investment strategies, helps wealth endure for future generations.

The missing piece: Education and communication
While sophisticated financial planning is critical, the real cornerstone of wealth preservation lies in open communication and instilling core values. Increasingly, families are holding multigenerational conversations, bringing grandparents, parents, and children together to discuss the purpose of their wealth and the responsibilities it entails.

For families hesitant to discuss wealth, avoiding these conversations can have dire consequences. Without a clear financial vision, younger generations are ill-equipped to manage the assets they inherit. Families that routinely discuss their values and financial goals, particularly with the help of an advisor who can provide a clear picture and facilitate productive discussions, set a powerful foundation for continuity. The timing of these conversations depends on the maturity of the heirs, but families should prioritize starting the educational process early to avoid the risk of waiting until it’s too late.

Passing down more than money
The most successful families understand that generational wealth encompasses more than financial assets. For some, this involves establishing a charitable fund for heirs to manage, teaching them a sense of responsibility and the importance of giving back. For others, it includes structuring inheritances to match their heirs' earned income, providing a lasting incentive to work hard while upholding the family legacy. 

Ultimately, the goal is to prepare heirs to succeed in the face of uncertainty. Families who invest in the education of the next generation are better positioned to shield their children from turbulent times and sustain their wealth, values, and legacy.

About the author
Bill Smith is president and CEO of the Trust Company of the South. He also serves as chairman of the board and is a member of the firm’s management committee. Based in the Greensboro office, he oversees client relationships, assists in new business development efforts, and works directly with many of Trust Company’s not-for-profit clients.  A Certified Financial Planner™ professional, he has over thirty years of experience in the financial services and wealth management industry.  After co-founding the firm in 1992, Bill joined Trust Company in 1995 after an eight-year career with several closely held businesses in the fields of commercial finance and real estate development.

He serves on the board of trustees of Elon University, Greensboro Day School and is a member of the executive board of directors of the Piedmont Triad Partnership and the Piedmont Triad Charitable Foundation (the host organization for the Wyndham Championship).

Bill graduated Phi Beta Kappa from the University of North Carolina at Chapel Hill with a BA in economics (1988) and the College for Financial Planning (1999). Bill and his wife, Sue, have one daughter and live in Greensboro. In his spare time, Bill enjoys reading, playing golf, and spending time with his family and friends.