A legacy desired by most families is to help fund the next generation’s success by supporting their educational and business endeavors. That’s why providing capital to support a legacy is important among the functions capital plays in Family Inc.
The basic Family Inc. Net Worth analysis illustrated in Chapter 1 is based on the assumption that at age 25, a person starts with significant labor assets and no financial assets. (See Figure 24.1.)
This profile can be dramatically altered through inheritance or gifting. Providing heirs with capital that can be invested early in their adult lives allows them to benefit from the effects of long-term compounding. This has huge positive implications for wealth creation. Figure 24.2 employs all of the same assumptions except that it includes the addition at age 25 of a $100,000 gift that is invested with a 5 percent real, after-tax, after-fee return.
As Figure 24.2 shows, thanks to the long-term compounding of the incremental $100,000, that gift grows to be approximately 65 percent of all the financial assets accumulated through savings and investment by age 65. Wisely managed, the gift dramatically ...