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Hey, this is Sharan Srivata. Welcome back to the Business School podcast and I got a special

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episode for you because I'm going to show you how to build generational wealth. Now,

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this is not okay because I actually give you the exact blueprint that the vanerable's used

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and what you should not do, what the Rockefellers used and what you should do and several families

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along the way and the specific strategies that you can use right now, whether you are ballin

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and you have a ton of money in wealth or whether you're just starting out. And this entire

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episode actually is a really rich YouTube video that is totally taking off on my channel right

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now. So if you are interested in that, you should check it out, but I actually package it for

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audio so that you can listen to it today on the go. This I walk you through the generational

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wealth system. It is a nine-step system and I'm going to break it down step by step starting right now.

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One thing is for certain, just because it's tried and true doesn't mean it's working right now.

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So the big question is this, where can you learn what is working right now? The strategies,

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the tactics, the psychology and the exact how to, how to go your business, how to blow up your

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personal brand and supercharge your personal growth. That is the question and this podcast will

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give you the answer. My name is Sharon Trevazza and welcome to Business School.

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Let me tell you something interesting. In 1877, the vanerable fortune was $300 million. That's

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about $10 billion in today's money. But by 1973, not one descendant was even a millionaire.

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But on the other hand, the Rockefellers started much smaller, but six generations later,

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they still support over 250 of their heirs. So what's the difference? People who wait to learn this

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until they're wealthy usually never keep their wealth, but people who learn this early build wealth

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into a system that can hold it. So here are the nine systems that build and keep generational wealth.

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The first system is the dynasty trust. So let's say there are four generations and we can see how

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different examples shake out. In the first examples, very similar to the vanerables, say the first

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generation gives all the assets to the second generation and assume that all of the assets are

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managed well, they still have to pay estate taxes and transfer taxes. And that happens from generation

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to generation, even those assets are managed well. But we know the taxes are one of the biggest

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drags on wealth creation. So each of the generation starts to dilute how much money they get.

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The second example is better, where they actually use some estate planning strategies. So the first

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generation understands that they're going to give the assets back to their family members so they

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actually utilize the generation skipping trust, which is they skip a generation that are still

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able to manage the transfer taxes by just skipping one generation. Even this dramatically helps

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the family. This is a good option, significantly better than the first one. But the third option,

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this is what the Rockefellers did. Even though they started with a small amount of fortune compared

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to the vanerables, they gave all their assets to the trust. And they paid the transfer taxes one

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time. But as the assets from generation to generation started to grow, it gave three big benefits

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to the family. Number one, it gave them income during their life. Number two, it gave them the

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ability to borrow against their assets using a loan to go invest in other vehicles. And third,

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there was no estate taxes or transfer taxes between generations. This is what happens when you

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don't have to dilute the entire principle of that trust and you keep the wealth of the family

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growing over time and still helping the family members overall. This one thing, utilizing the

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dynasty trust, helped the family grow its entire asset base. I know giving money directly to

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your family members feels personal, but that's exactly how fortunes vanish. The personal ownership

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exposes wealth to taxes and lawsuits and divorces. And even if you don't have that level of

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wealth right now, planning for it is really important. This is why the vanable family lost so much

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wealth from generation to generation and the Rockefeller's wealth completely compounded. The Rockefeller

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family didn't manage their money any better. They actually used a specific legal structure. This

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brings us to the second system, the holding company. Do you know why the Walton family has more

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members in the Forbes 400 list than any other family in the world? It's because the Walton's

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put a company between themselves and Walmart, the number one retail in the world. Their company

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owns a stock, not the family directly. In this case, Jim, Alice, and Rob Walton, who are actively

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running the business, all together own less than 1% of Walmart. They have a family trust structure

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that owns the 19%, which has the entire family trust that has been given down generations to

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generations. But the Walton Enterprises, the company, the holding company has all the controls,

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all the rights, and the ability to transfer this from generation to generation that holds control

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of Walmart. When transferring assets to the next generation, equal ownership feels fair.

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Ownership is not the problem. Ownership structure is the problem. And the Walton's realized that

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early on, which is why they were able to build the number one retailer in the world by keeping

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the entire family's control structure within the family for generations. The third system

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is a life insurance liquidity engine. Liquidity in its simplest terms means that you can get access

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to cash whenever you need it. Jorabi built the Miami Dolphins into an asset worth hundreds of

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millions of dollars, but he owned the team personally. And when he died, his estate owed massive

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taxes, and the team was the only major asset. Clearly, you can't pay the IRS with an NFL team.

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With no liquidity plan to pay the taxes, the family had to sell the team at unfavorable terms.

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Discipline families go even further. The trust becomes a family bank, and they use

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a collection of life insurance policies to fund that family bank. Let me show you how this works.

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Whether you're just starting out or have tens of millions of dollars, starting a family bank

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could be a great idea. This is how you would do it. Your family bank would buy a life insurance

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policy for every member of the family. And as it pays the premiums and the policies mature,

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two things happen. It starts to pay dividends back to the family bank, and it starts to provide

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cash value to the family bank. This is where the bank actually has cash. It has liquidity to help

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the family. At that time, the family members can borrow from themselves from their own family bank.

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This may be for investments, for lifestyle, or to invest in real estate or companies. And when

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those investments are paid back, they go back right into the family bank. This way, for every new

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family member that is born, a life insurance policy is taken out on them, and it matures by putting

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more cash in the family bank. And if there is a debt in the family, the life insurance pays out,

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and further gives more liquidity to the family bank. This structure allows for the family bank to

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grow as an asset, setting it up to support families for generations to come. The problem is,

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most people think life insurance is for income replacement, or to get somebody paid off for risk

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at debt. But wealthy families use it as a shock absorber, use it for cash on demand when

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taxes hit or when tough situations hit. As we saw with the Miami Dolphins, without liquidity,

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families are forced to sell important assets. This life insurance prevents four sales and protects

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the long-term compounding. The fourth system is the family constitution. So here's a story of

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two brothers. They inherit a $5 million company, but it doesn't have any written rules. One of them

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wants to reinvest the money and the other wants cash now after a divorce. With no structure,

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there is conflict. The lawyers get involved, creditors get involved, and they are forced to sell

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the business for three million instead of five million. If there were written rules, it would have

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allowed for loans or distributions or access to the cash. It would have ensured that no one could

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have forced a sale in a tough situation, and the business would have stayed intact and actually

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grown. This is why you need rules for all family assets. Instead of forcing a sale when they

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didn't want to do it, the business would have just stayed intact and grown over time. Like in sports,

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rules are there for fairness, but in business and in family, rules are there to actually win the

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game. This is called a family constitution and how it works is, instead of giving family

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members ownership in these assets, there are rules that define these ownerships. And the family

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members actually have to abide by all the rules. It doesn't matter if you're just starting out,

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or you have hundreds of assets. In fact, the only family asset you may have is your home.

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Just giving it to your three children may not be the exact answer because they all don't know what

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the rules are. So each family asset needs to be tied to a set of rules where all the members

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inheriting them or having control over them know what they can do to actually benefit the family.

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The rules do two important things. Number one, they give the benefit of the asset to all the

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family members. And number two, they protect the family assets so that it grows over time for

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generations to come. There are three best times to write these rules. Number one, when you start

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setting up these family assets, because whenever you started right, that's how it actually continues.

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Number two, when everyone is cool, common collected, because they have a level head in approaching

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how the family assets are set up for the next generation. And number three, do it right now,

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because nothing great ever happened without it being written down. System number five is councils

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and committees. The Hurst family is one of the most iconic families in America. They even built

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the Hurst Castle in California and they did something extremely different. They set up a board

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for their family trust. This board has three types of people. One, the members of the family.

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Two, independent members outside of her family. And three, a corporate trustee. And this allows

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for three big advantages. Number one, there's an objective way for following the trust agreement.

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The rules that were set up by the family to take care of the family. Number two, it ensures that

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there is no rogue family members that can destroy the assets that were built over time for the

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family. And number three, having the corporate trustee and having independent family members

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teaches our family members on how to be better stewards of the assets. We learned this process

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from the Hurst family trust and we adapted this to ourselves. It doesn't matter if you are just

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starting out or it doesn't matter if you have a lot of assets. Putting a board of directors in

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place just like a public company would do to safeguard your assets and the compounding over time

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could be a great idea. This brings us to the sixth system which is transfer restrictions. The

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Mars company which is the maker of M&Ms and sneakers has stayed private since 1911 and is the

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world's largest family owned business. The ownership is structured so selling any part of it is

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intentionally hard. There is no public company stock and there are strict transfer rules of the

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shares. This forces family members to not make rash decisions. They can't cash out. The divorces

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can't force sales and creditors can't really seize any control. Staying private removes this

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short term pressure and allows for decades long reinvestment into the business. Let's say you had

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a business with three partners and each of the partners could sell their shares anytime. Well,

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if this partner could sell their shares and one third of their stake then it creates a lot of

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chaos for the business itself. It now can dramatically change the control structure of the business.

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What if I bought those shares and I didn't know anything about the business and I started voting

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in a different way? It could then force bad decisions where the other two partners now have to

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make different decisions like selling or recapping or changing the business structure because they

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have a bad second partner or third because of this they can't make good future decisions.

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And if external creditors or potential lawsuits knew that each of the members could do something

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and could sell their shares, you can get blackmailed, you can get ransomed, you can get more

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lawsuits because they know that the liquidity is accessible. The better way is to make important

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things difficult to do but not impossible. There are times when the partner may have to sell

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their shares. There are times when the partner may need liquidity. You don't want to make anything

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impossible to do but you just want to make important things difficult to do. This is why putting

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transfer restrictions on things over time is important because if somebody really wants to do

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something and it's important for their life, it doesn't matter what the friction is, they will

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still do it. But in this case, you're making it easy for them to make bad decisions. What if you

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needed the ability to get cash? And I found that it cash is not the problem, it is access to the cash.

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And in fact, this is not a problem for you and me. It's even a problem for billionaires. When Elon

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Musk wanted to buy Twitter, he didn't sell $44 billion worth of Tesla stock to go buy Twitter.

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He actually borrowed against it. He didn't have the cash sitting in his checking account. He was

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able to collateralize his shares and then borrow against it to then go buy Twitter. This is exactly

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why the Rockefellers used the life insurance policy system where they were able to have their own

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bank to borrow against it. And sometimes if you can't borrow from somewhere or have access to cash

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and you have to sell your stake, you can even sell them to family members, which is why a lot

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of family members put a clause in there that requires a right-of-first refusal so that it doesn't

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make a bad decision of selling shares randomly to a third party that may wreck the business and

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the partnership. The seventh system is long-haul design. After we sold our first business, my partner

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and I set up our first VC fund. And the goal was to invest for five years and make about 30 investments.

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We did okay, but we barely beat the S&P 500. We stepped back and asked ourselves,

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what would be the one change that we would make in the next fund? And we realized that it was not

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the strategy, it was not the tactics, but it was the time horizon. So instead of having a five-year

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fund plan, we decided to have a hundred-year plan. We completely changed the time horizon of our

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investments and this did two things for us. It dramatically reduced our stress to get the

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returns just tomorrow and it changed our strategy on how we look at the future. Just making this one

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adjustment going from a five-year plan to a hundred-year plan gave us the best investments we could

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have ever made. I learned this idea from Warren Buffett about having a punch card of investments

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for your life. Imagine you had a punch card with ten holes in it and you could only make ten

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investments in your life and nothing else. Wouldn't you take those investments extremely seriously?

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That is how wealth is really made. You make good decisions and you hold them for a long period of

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time. This ensures that you don't interrupt the compounding of a good decision because your

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hardest working business partner is time. Number eight is liquidity reserves. Let's say you walk

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into the office and you have your nine employees and each of your employees were doing nothing.

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How would you feel? You would be upset, you would be mad because every employee needs a job.

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In the same way, if you look at your bank account and you have your money in there, you realize

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that it's just sitting there and cash. It's lazy cash and just like every employee needs a job,

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every dollar needs a job. So the problem is not having cash in an emergency fund. The problem is

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utilizing that well because every dollar needs a job. So instead of having an emergency fund,

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what should you actually do? The answer is not having the cash. The answer is having access to the

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cash as and when you need it. The number one thing that an entrepreneur should do is to build

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access to cash just in case they need cash at a given time for growth or expansion or any kind of

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risk in the business. Let me show you seven ways in how you can get access to cash and you can use

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them based on your personal situation. Number one, credit cards. There's a mentality that you don't

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want to borrow from your credit cards, but in an emergency, that's exactly what it's therefore.

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Number two is a HELOC or a home equity line of credit. You have equity in your home that is

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dead equity. No one can use that. That cash is lazy cash, but in an emergency, if you need it,

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you're able to borrow against your own asset against your own bank to be able to deploy it in some

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way that you want. Number three, a line of credit. You can walk into your bank or right now and ask

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for a line of credit. They may walk you through the process of showing your P&Ls and your business plan

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to give you an operating line of credit, but you don't even have to use it. Just having it there

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gives you access to cash. Number four, a securities backed a line of credit. You can borrow against your

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stock and bond portfolio, just like the billionaires borrow against their stock. You and I can borrow

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against our stock too. Number five, cash value life insurance. This takes some time to build,

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but as you're building up cash value life insurance and as the policies get mature, you now have

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the ability to borrow against the cash value of that policy and use it for whatever use you want.

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Number six, hard money. Real estate is a very common use of hard money for flipping or acquiring

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properties, but you can use it for any situation as a private money loan. Most people are unaware

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that this option exists. The interest rates vary based on what you're using it for and how long

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you actually have the money. But in a pinch, when you actually need the money, when you actually

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need access to cash, you have the option of hard money. Number seven, a payment processor loan.

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I have seen companies like Stripe and other payment processors that will actually give you a loan

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based on your entire payment processing balance. Now, I'm not saying that everybody should go do that,

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but in a time where you actually need access to cash and you can click a button and get the

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loan and deploy the cash into your business the way you wanted, it could be an interesting idea.

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The ninth system is next-generation training. Here's why you should never pay your children to do

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chores. Chores create a negative connotation for work. If the only thing that children think about

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is that they have to do the dishes or take out the trash to get paid their allowance,

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it creates a significant negative association for the work and effort for the future.

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If we had adult children, we wouldn't just tell them to take out the trash and pay them $10,

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we would encourage them to learn new skills or go get a job. That's exactly what I did with my

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daughter Lara. When she was six to seven years old, just like every other girl, she loved

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rainbows and unicorns. And so we built an e-commerce site called 100unicorns.com. It taught her

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how to start a website, how to source products where you get them from China and build an entire

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business out of it that actually made money. She realized that creating value in the marketplace

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is what got her paid. She was willing to put the extra effort in on the weekend to build

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something that was truly hers. We did something different with my son Neil. He loved to read.

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For every book that he read, we gave him $50, not in cash, but in the ability to invest $50. So

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every time he finished reading a book, he got $50 to invest and learn how to invest in the stock

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market. And now, over the last many years, he has developed the skill of becoming an investor,

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which you'd have never gotten the chance to do any other way. The goal is not to create a system

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for our children to do chores to earn their allowance. Our job as parents is to teach our children

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the skills, to be able to take over for us in the next generation. And there's three important

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things when it comes to the next generation's value creation. The first is their passion.

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Most families, when they get wealthy, just let their kids do whatever they want. They let them do

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dance and let them have YouTube and they let them fund their lifestyle. That is important because

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it keeps them interested in the game, but there's two other important components. One is skills.

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We have to teach them how to work, not to do chores, but to give them a reason to put an effort

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and create value in the world. And it can do it in very small ways. And the second is to teach

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them the skills of money, is to help them understand how money works so that they can be good

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stewards of it in the future. The third most important thing is our character. When you can have

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education, you learn to become a better citizen of the world. And being a better citizen of the world

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ties to philanthropy, which is just the art of giving. Because when you know that there's something

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more than yourself, there's something bigger than yourself to actually aspire to and to give.

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They are better trained for the next generation to take over. Now that you've seen the systems

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that keep wealth alive across generations, there's one question you have to answer first.

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Why do some people never build real wealth?

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Hey, this is Sean. I have an awesome free gift for you just for listening to the podcast.

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As you may know, I've got a chance to build two billion dollar companies the hard way.

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It's on my substack called My Next Billion. It has the exact frameworks I wish someone had given me

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MyNextBillion.com