How to Create Generational Wealth with Lower Taxes

Dateline: Mexico City, Mexico

I often ask my clients, “What’s next?” 

And when they answer, I ask it again…and again. 

Beyond the idea of how to accumulate more wealth is knowing the end purpose of it all. What happens after you’ve amassed all of this money and you are no longer around? What is your legacy going to be?

Your answer to these questions can help direct your actions now. 

To illustrate this concept, I want to share with you the story of a young gentleman who came to me recently. He’s only 25 years olds, but he has an increasingly successful business. He realized that by going overseas and keeping more of his money, he could create incredible generational wealth.

It’s easier to create a legacy like that when you’re younger, but anyone can do this. 

In this article, we’ll discuss the importance of considering your end goals and how to achieve them by saving money and paying lower taxes. Then we’ll run through some of the numbers I discussed with this gentleman and talk about how to create a legacy of generational wealth for your family and your causes.

What are your end goals?

The first point to consider is where you want your money to take you. Really flesh out what it is you want and then you can determine the steps to get you there. 

Financial education for yourself and your children will enable you to make wise decisions about how to go about saving more of your money and how to keep more of it through the generations.

In order to create your legacy of generational wealth, you’ll need to know the direction you’re going so that you can put yourself in a place where you are in control of where your money goes. 

For this gentleman in my story, at 25 years old, his end goals were around his future family. He would like to eventually get married and have a family. He felt the years ahead of him were an opportunity to save as much money as possible now in order to not always be at work when he does start a family. 

He grew up in a middle-class background and his parents weren’t able to facilitate that for him as they were always working. He would like to be present while also being able to support both his parents and children.

In the end, he wants to have been a good father and then have saved money to create generational wealth he can leave to his family and some causes that he cares about. 

Your goals may look a little different, but the process will be similar. Decide what your end goals are and then flesh out the details.

The important thing to consider is that without proper planning and education, much of your savings and wealth can go to the government in gift and estate taxes or be lost in unwise decisions. Educate yourself and your children on the best ways to save and keep money through the generations. 

How to save money to get to your end goals

At age 25, the gentleman in our story has passed the threshold of making over $1 million a year. He called me because he realized crossing that threshold put him in a whole different league. 

He quickly discovered how much of his money he was giving away in taxes from where he lives in Idaho, USA.  Idaho is a moderate tax state, but he was also paying very high tax levels to the federal government, as well as Social Security and Medicare. He had the full slate of US taxes. For him, this added up to about $3500 in taxes a month. 

Every quarter he files his quarterly estimate, it’s about $100,000. 

He felt he was not in control of where his money was going. 

I’ve talked with many people who make over $1 million who feel similarly that they can’t save enough. One man in New York City mentioned he’s not saving much at all between the crazy taxes and the cost of living. He felt if he was saving $75,000 out of $1 million a year he was doing really well. 

There’s a better way to handle your money so that you’re keeping more of it.

There are basically two stories you can choose from. 

First, you can stay in the United States. You’re going to keep paying over $400,000  in taxes a year. Certainly, you can live in Idaho or anywhere in the world with a great standard of living for $700,000 a year, but you’re going to be spending, not saving, more of that money.

I always warn people that staying in the US often leads to getting caught up in keeping up with the Joneses. You’re surrounded by people you know—family and friends—who are going to convince you that since you have the money, why not get the next big car or the more expensive house.

For example, I’m not a car guy. I honestly feel that if I were living in the US, I would feel pressured to buy one. 

I once had a client who became a friend and we got involved in a side business together. I picked him up in my car one day and he said, “You’re doing all this business and this is the car you drive?!” He strongly recommended I buy the nicest car I can.

If I were in the US I probably would have listened to him eventually. I could go buy an Aston Martin, I guess, but I don’t want an Aston Martin. For some people that’s great. For me, it would feel like a waste of a couple hundred thousand dollars because I wouldn’t appreciate the car. 

The point is that in the US, not only will you be paying a substantial portion of your income to the government in taxes, but you’ll also feel pressured on what you need to buy, whereas overseas you’ll save more of your money and be able to decide what you really want to spend it on. 

There’s story number one.

For the second story, let’s say our gentleman moves overseas and goes fully offshore. He can reduce his tax rates pretty close to zero and keep more of his money to build generational wealth. 

Let’s just say he keeps living on the $700,000 — though most likely he’ll live on less than that and still have a very luxurious lifestyle. 

Overseas he can take that $3500 a month that he paid in taxes and invest it rather conservatively. Let’s say he makes 5% on that money. 

Ten years go by and now he’s 35 years old. 

He’s probably married now and maybe has a child. With his $3500 a month, at 5% he’s not going to make a fortune, but he’ll have about $5.42 million after ten years. Obviously, this works no matter what your age, but it’s certainly impressive when you’re 35 years old.

The next thing to consider is what he’ll do with the business in 10 years. He said he would possibly sell it. So let’s say he sells it for $10 million. Potentially, depending on where capital gains tax rates go, he could be saving anywhere from $2 – $4 million by fully going overseas.

So he would have $5.5 million from investments and $3 million or so from selling his company. That’s $8.5 million that he’s saved just from going overseas. 

How to create and build generational wealth

In our second story, we now have this young gentleman at 35 years old and he has saved $8.5 million from moving overseas. That in itself is substantial savings he can pass on to his children. But let’s take it further and see how he can build on that generational wealth.

Now he can invest the money he’s saved. 

From 35 to age 65, the next 30 years before he retires, if he invests that conservatively at 5%, by age 65, he’ll have close to $40 million. 

That’s a pretty good legacy. 

If he gets a higher rate of return, maybe 7%, then he’ll be somewhere in the $60 million range. If he invests it in something more aggressive, like cryptocurrency, he’ll get 10-12% returns.  Then you’re talking about serious multi-millionaire status and generational wealth that can last forever.

He’s still living on the $700,000 a month by the way. Creating and building generational wealth in this second story isn’t done by scrimping—it’s’ done by taking you and your business where you’re treated best. 

And if he doesn’t want to work after 35, then in the 10 years before that he can easily set aside some of that money in a separate account for the 35-65 years. Or he could run a smaller business during that time.

He’ll have all the options in front of him for both his personal living and a plan to be able to build that generational wealth because he saved money by going overseas and invested what he would have spent in taxes.

This also doesn’t even assume that the business will get any bigger. He’s still in the building phase of his business and I think he’ll do even better when he’s able to keep more of his money. Keeping more of your money adds motivation, so it’s very possible that his business will grow. 

So he’s worked from age 25-35 during those 10 key years where he was able to accumulate income, saved it even conservatively, and then he can retire and just push that money forward for the rest of his life.

For those 10 years, he might live in a place like Dubai, Singapore, or Panama City. He can even just travel around the world. There are many different ways he can do it, but the key is to use those 10 years to get out from paying 40% in taxes and saving that money in a way that leads to a generational wealth legacy that he can pass on.

We’re talking about potentially having $100 million simply by moving out of Idaho and going to a place where his business is treated better and he can keep most of his money. 

The legacy of generational wealth

Getting out from under a big tax burden will enable you to build generational wealth that will give you all the options you want.

This will depend on those end goals we talked about in the beginning. For the gentleman in our story, he’ll easily be able to provide for his parents and children, while also having the ability to slow down at work and be present for his family. 

You’ll have the ability to decide what you want to leave for your children and what to give to causes near and dear to your heart.

Considering how much you should leave to your kids should be done with caution and thoughtfulness. If I had kids and $100 million, I personally wouldn’t leave my kids $100 million. But at least you have the freedom to choose what you want to do.

The compound interest is so powerful, especially when you’re young. When you take a tax rate from 40% down to 0% or 2% or 5%, it’s pretty powerful no matter how old you are.

So forget being able to reinvest that money, forget buying houses to develop your Trifecta, forget all the stuff that we normally talk about here at Nomad Capitalist. Start with lowering your taxes.

I know some folks think the next generation will squander it, but you can set up trusts and foundations that do charitable work. You’ll be able to decide how you want your wealth managed. 

I grew up in a successful family, but when I turned 18 my parents said they weren’t giving me anything. They helped me out with college because they and my grandmother had saved some money, but I wasn’t given loans, they didn’t invest in my company, and they didn’t provide any inheritances. 

I think that made me a stronger entrepreneur.

Carefully plan how much and when to give your children money. Many people want their families to have advantages that they didn’t have. Building generational wealth will enable you to decide the best way to help your family.

Your legacy can live on for generations. 

Consider the power of trading Idaho for so many other places in the world in order to have $40, $60, or $100 million to give. You’ll be able to do whatever you want with it. You can leave whatever legacy you want. You’ll have options that you wouldn’t have had as readily by just staying in Idaho.

Beyond all the instant effects of having an extra $420,000 saved from taxes a year, that’s something that I think can inspire you. The numbers at the end of the day are a lot bigger than what you’re seeing when you look at your tax return. 

It’s definitely something to consider.

If you have questions on how you can get started building generational wealth and going where you’re treated best, contact us today.

Andrew Henderson
Last updated: Apr 30, 2021 at 11:55AM

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