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Building generational wealth isn’t about how much you make–it’s about how you structure it for lasting growth. Are you ready to build wealth that spans generations? In this episode, Sharran reveals the nine-step system for building and preserving generational wealth. Taking lessons from the Vanderbilt and Rockefeller families, Sharran walks listeners through key strategies that not only protect wealth but multiply it across generations.
He shares the essential tools and systems that ensure family wealth continues to grow without dilution. Sharran also discusses the importance of a family constitution, holding companies, and transfer restrictions to protect assets from unnecessary taxes, lawsuits, and poor decisions. In addition, he highlights the necessity of teaching the next generation the value of money, creating systems for them to manage, and developing their skills for future wealth-building.
This episode is a must-listen for anyone serious about building wealth that lasts, whether you’re just starting out or looking to preserve millions for the next generation.
“Imagine you had a punch card with ten holes in it, and you could only make ten investments in your life, and nothing else. Wouldn’t you take those investments extremely seriously? That is how wealth is really made; you make good decisions, and you hold them for a long period of time.”
– Sharran Srivatsaa
Timestamps:
01:32 – The fall of the Vanderbilts and the success of the Rockefellers
02:07 – The Dynasty Trust system for wealth transfer
04:17 – The Walton family’s holding company model
05:17 – Life insurance as a liquidity engine for the family
07:15 – The need for a family constitution
09:11 – The Hearst family’s trust and board structure
10:18 – Transfer restrictions to keep businesses private
13:03 – Long hold design and the importance of patience in wealth creation
14:19 – Liquidity reserves and borrowing against assets
17:01 – Next generation training: Teaching kids the value of money
Resources:
– In 18 Minutes, You’ll Understand Generational Wealth
– The Next Billion by Sharran Srivatsaa
– Board Member: ARC Multifamily Real Estate Investing
– Board Member: The Real Brokerage
Connect with Sharran:
– X
– YouTube
– Threads
Transcript:
[00:00:00] Hey, this is Sharran Srivatsaa. Welcome back to the Business School Podcast. And I got a special episode for you ’cause I’m gonna show you how to build generational wealth. Now this is not hokey because I actually give you the exact blueprint that the Vanderbilts used and what you should not do, what the Rockefellers used, and what you should do and several families along the way, and the specific strategies that you can use right now whether you are balling and you have a ton of, uh, money in wealth, or whether you’re just starting out and this entire.
[00:00:30] Episode actually is a really rich YouTube video that is totally taking off on my channel right now. So if you are interested in that, you should check it out. But I actually packaged it for audio so that you can listen to it today on the go. This I walk you through the generational wealth system. It is a nine-step system and I’m gonna break it down step by step, starting right now.
[00:00:57] One thing is for certain, just because it’s tried and true doesn’t mean it’s working right now. So the big question is this. Where can you learn what is working right now? The strategies, the tactics, the psychology, and the exact how to, how to grow your business, how to blow up your personal brand, and supercharge your personal growth.
[00:01:19] That is the question. And this podcast will give you the answer. My name is Sharran Srivatsaa, and Welcome to Business School.
[00:01:32] Lemme tell you something interesting. In 1877, the Vanderbilt fortune was $300 million. That’s about $10 billion in today’s money. But by 1973, not one descendant was even a millionaire. But on the other hand, the Rockefellers started much smaller. But six generations later, they still support over 250 of their heirs.
[00:01:52] So what’s the difference? People who wait to learn this until they’re wealthy usually never keep their wealth. But people who learn this early build wealth into a system that can hold it. So here are the nine systems that build and keep generational. The first system is the dynasty trust. So let’s say there are four generations, and we can see how different examples shake out in the first examples.
[00:02:15] Very similar to the Vanderbilts, say the first generation gives all the assets to the second generation, and assume that all of the assets are managed well. They still have to pay estate taxes and transfer. And that happens from generation to generation. Even those assets are managed well. But we know the taxes are one of the biggest drags on wealth creation.
[00:02:34] So each of the generations starts to dilute how much money they get. The second example is better where they actually use some estate planning strategies. So the first generation understands that they’re gonna give the assets. Back to their family members. So they actually utilize the generation skipping trust, which is they skip a generation and are still able to manage the transfer taxes.
[00:02:54] By just skipping one generation, even this dramatically helps the family. This is a good option. Significantly better than the first one, but the third option, this is what the Rockefellers did. Even though they started with a small amount of fortune compared to the Vanderbilt, they gave all their assets to the trust and they paid the transfer taxes one time.
[00:03:11] But as the assets in from generation to generation started to grow, it gave three big benefits to the family. Number one, it gave them income during their life. Number two, it gave them the ability to borrow against their assets using a loan to go invest in other vehicles. And third, there’s no estate taxes or transfer taxes between generations.
[00:03:31] This is what happens when you don’t have to dilute the entire principle of that trust and you keep. The wealth of the family growing over time and still helping the family members overall. This one thing, utilizing the dynasty trust helped the family grow its entire asset base. I know giving money directly to your family members feels personal, but that’s exactly how fortunes vanish.
[00:03:54] The personal ownership exposes wealth to taxes and lawsuits and divorces. Even if you don’t have that level of wealth right now, planning for it is really important. This is why the Vanderbilt family lost so much wealth from generation to generation, and the Rockefeller’s wealth completely compounded.
[00:04:10] The Rockefeller family didn’t manage their money any better. They actually used a specific legal structure. This brings us to the second system, the holding company. Do you know why the Walton family has more members on the Forbes 400 list than any other family in the world? It’s because the Waltons put a company between themselves and Walmart, the number one retailer in their world.
[00:04:29] Their company owns the stock, not the family directly. In this case, Jim Alice and Rob Walton, who are actively running the business altogether, own less than 1% of Walmart. They have a family trust structure that owns the 19%, which has the entire family trust that has been given down generations to generations.
[00:04:48] But the Walton Enterprises, the company, the holding company, has all the controls, all the rights, and the ability to transfer this from generation to generation that holds control of Walmart when transferring assets to the next generation equal ownership feels fair. Ownership is not the problem.
[00:05:04] Ownership structure is a problem, and the Waltons realized that early on, which is why they were able to build the number one retailer in the world. By keeping the entire family’s control structure within the family for generations. The third system is a life insurance liquidity engine. Liquidity in its simplest terms, means that you can get access to cash whenever you need it.
[00:05:25] Joe Robbie built the Miami Dolphins into an asset worth hundreds of millions of dollars. But he owned the team personally and when he died, his estate owed massive taxes and the team was the only major asset. Clearly, you can’t pay the IRS with an NFL team with no liquidity plan to pay the taxes. The family had to sell the team at unfavorable terms.
[00:05:46] Disciplined families go even further. The trust becomes a family bank and they use. A collection of life insurance policies to fund that family bank. Lemme show you how this works. Whether you’re just starting out or have tens of millions of dollars, starting a family bank could be a great idea. This is how you would do it.
[00:06:02] Your family bank would buy a life insurance policy for every member of the family. And as it pays the premiums and the policies mature, two things happen. It starts to pay dividends back to the family bank, and it starts to provide cash value to the family bank. This is where the bank actually has cash, it has liquidity to help the family.
[00:06:19] At that time, the family members can borrow from themselves, from their own family bank. This may be for investments, for lifestyle, or to invest in real estate or companies. And when those investments are paid back, they go back right into the family bank. This way, for every new family member that is born, a life insurance policy is taken out on them and it matures by putting more cash in the family bank.
[00:06:41] And if there is a debt in the family, the life insurance pays out and further gives more liquidity to the family bank. This structure allows for the family bank to grow. As an asset, setting it up to support families for generations to come. The problem is most people think life insurance is for income replacement or to get somebody paid off for risk of death, but wealthy families use it as a shock absorber.
[00:07:01] Use it for cash on demand when taxes hit or when tough situations hit. As we saw with the Miami Dolphins, without liquidity, families are forced to sell important assets. This life insurance prevents forced sales. And protects the long-term compounding. The fourth system is the family constitution. So here’s the story of two brothers.
[00:07:19] They inherit a $5 million company, but it doesn’t have any written rules. One of them wants to reinvest the money and the other wants cash. Now, after a divorce with no structure, there is conflict. The lawyers get involved. Creditors get involved, and they are forced to sell the business. For 3 million instead of 5 million.
[00:07:37] If there were written rules, it would’ve allowed for loans or distributions or access to the cash. It would’ve ensured that no one could have forced a sale in a tough situation, and the business would’ve stayed intact and actually grown. This is why you need rules for all family assets instead of forcing a sale when they didn’t want to do it, the business would’ve just stayed intact and grown over time.
[00:07:56] Like in sports rules are there for fairness. But in business and in family rules are there to actually win the game. This is called a family constitution, and how it works is instead of giving family members ownership in these assets, there are rules that define these ownerships, and the family members actually have to abide by all the rules.
[00:08:14] It doesn’t matter if you’re just starting out or you have hundreds of assets. In fact, the only family asset you may have is your home. Just giving it to. Your three children may not be the exact answer because they all don’t know what the rules are. So each family asset needs to be tied to a set of rules where all the members inheriting them or having control over them know what they can do to actually benefit the family.
[00:08:38] The rules do two important things. Number one, they give the benefit of the asset to all the family members, and number two, they protect the family assets so that it grows over time for generations to come. There are three best times to write these rules. Number one, when you start setting up these family assets, because whenever you started, right, that’s how it actually continues.
[00:08:57] Number two, when everyone is cool, calm, and collected because they have a level head in approaching how the family assets are set up for the next generation. And number three, do it right now because nothing great ever happened without it being written down. System number five is councils and committees.
[00:09:12] The Hearst family is one of the most iconic families in America. They even built the Hearst Castle in California, and they did something extremely different. They set up a board for their family trust. This board has three types of people. One, the members of the family, two independent members outside of our family, and three, a corporate trustee.
[00:09:32] And this allows for three big advantages. Number one, there’s an objective way for following the trust agreement, the rules that were set up by the family to take care of the family. Number two. It ensures that there’s no rogue family members that can destroy the assets that were built over time for the family.
[00:09:51] And number three, having the corporate trustee and having independent family members teaches our family members on how to be better stewards of the assets. We learned this process from the Hearse Family Trust, and we adapted this to our. It doesn’t matter if you are just starting out or it doesn’t matter if you have a lot of assets.
[00:10:09] Putting a board of directors in place just like a public company would do to safeguard your assets and the compounding over time could be a great idea. This brings us to the sixth system, which is transfer restrictions. The Mars Company, which is the maker of m and ms, and sneakers has stayed private since 1911.
[00:10:26] And is the world’s largest family-owned business. The ownership is structured, so selling any part of it is intentionally hard. There is no public company stock and it, there are strict transfer rules of the shares. This forces family members to not make rash decisions. They can’t cash out. The divorces can’t force sales, and creditors can’t really seize any control.
[00:10:47] Staying private removes this short-term pressure and allows for decades-long reinvestment into the business. Let’s say you had a business with three partners, and each of the partners could sell their shares anytime. [00:11:00] Well, if this partner could sell their shares and one third of their stake, then it creates a lot of chaos for the business itself.
[00:11:06] It now can dramatically change the control structure of the business. What if I bought those shares and I didn’t know anything about the business and I started voting in a different way? It could then force bad decisions where the other two partners now have to make different decisions like selling or recapping or chaining the business structure because they have a bad.
[00:11:23] Second partner or third. Because of this, they can’t make good future decisions, and if external creditors or potential lawsuits knew that each of the members could do something and could sell their shares, you can get blackmailed. You can get ransom, you can get more lawsuits, because they know that the liquidity is accessible.
[00:11:40] The better way is to make important things difficult to do, but not impossible. There are times when the partner may have to sell their shares. There are times when the partner may need liquidity. You don’t want to make anything impossible to do. But you just want to make important things difficult to do.
[00:11:56] This is why putting transfer restrictions on things over time is important because if somebody really wants to do something and it’s important for their life, it doesn’t matter what the friction is, they will still do it. But in this case, you’re making easy for them to make bad decisions. What if you needed.
[00:12:10] The ability to get cash, and I found that if cash is not the problem, it is access to the cash. And in fact, this is not a problem for you and me. It’s even a problem for billionaires. When Elon Musk wanted to buy Twitter, he didn’t sell $44 billion worth of Tesla stock to go buy Twitter. He actually borrowed against it.
[00:12:28] He didn’t have the cash sitting in his checking account. He was able to collateralize his shares and then borrow against it to then go buy Twitter. This is exactly why the Rockefellers used the life insurance policy system where they were able to have their own bank to borrow against it. And sometimes if you can’t borrow from somewhere or have access to cash and you have to sell your stake, you can even sell them to family members, which is why a lot of family members put a clause in there.
[00:12:54] That requires a right of first refusal so that it doesn’t make a bad decision of selling shares randomly to a third party that may wreck the business and the partnership. The seventh system is long hold. Designed. After we sold our first business, my partner and I set up our first VC fund, and the goal was to invest for five years and make about 30 investments.
[00:13:14] We did okay, but we barely beat the s and p 500. We stepped back and asked ourselves what would be the one change that we would make. In the next fund. And we realized that it was not the strategy, it was not the tactics, but it was the time horizon. So instead of having a five-year fund plan, we decided to have a hundred-year plan.
[00:13:34] We completely changed the time horizon of our investments, and this did two things for us. It dramatically reduced our stress to get the returns just tomorrow and to change our strategy on how we look at the future. Just making this one adjustment, going from a five-year plan to a hundred-year plan, gave us the best investments we could have ever made.
[00:13:52] I learned this idea from Warren Buffett about having a punch card of investments for your life. Imagine you had a punch card with 10 holes in it, and you could only. Make 10 investments in your life and nothing else, wouldn’t you take those investments extremely seriously? That is how wealth is really made.
[00:14:07] You make good decisions and you hold them for a long period of time. This ensures that you don’t interrupt the compounding of a good decision because your hardest-working business partner is time. Number eight is liquidity reserves. Let’s say you walk into the office and you have your nine employees and each of your employees were doing nothing.
[00:14:27] How would you feel? You would be upset, you would be mad because every employee needs a job. And the same way, if you look at your bank account and you have your money in there, you realize that it’s just sitting there in cash. It’s lazy cash, and just like every employee needs a job, every dollar needs a job.
[00:14:45] So the problem is not having cash in an emergency fund, the problem is utilizing that well, because every dollar needs a job. So instead of having an emergency fund, what should you actually do? The answer is not having the cash. The answer is having access to the cash as in when you need it. The number one thing that an entrepreneur should do is to build access to cash just in case they need cash at a given time for growth or expansion or any kind of risk in the business.
[00:15:11] Lemme show you seven ways in how you can get access to cash and you can use. Based on your personal situation. Number one, credit cards. There’s a mentality that you don’t wanna borrow from your credit cards, but in an emergency, that’s exactly what it’s there for. Number two is a HELOC or a home equity line of credit.
[00:15:26] You have equity in your home, that is dead equity. No one can use that. That cash is lazy cash, but in an emergency, if you need it, you’re able to borrow against your own asset, against your own bank to be able to deploy it in some way that you want. Number three, a line of credit. You can walk into your banker right now and ask for a line of credit.
[00:15:43] They may walk you through the process of showing your p and ls and your business plan to give you an operating line of credit, but you don’t even have to use it. Just having it there gives you access to cash. Number four, a securities-backed line of credit. You can borrow against your stock and bond portfolio.
[00:15:58] Just like the billionaires borrow against their stock, you and I can borrow against our stock too. Number five, cash value life insurance. This takes some time to build, but as you’re building up cash value life insurance. And as the policies get mature, you now have the ability to borrow against the cash value of that policy and use it for whatever use you want.
[00:16:16] Number six, hard money. Real estate is a very common use of hard money for flipping or acquiring properties, but you can use it for any situation as a private money loan. Most people are unaware that this option exists. The interest rates vary based on what you’re using it for and how long you actually have the money.
[00:16:33] But in a pinch, when you actually need the money, when you actually need access to cash, you have the option of hard money. Number seven, a payment processor loan. I have seen companies like Stripe and other payment processors that will actually give you a loan. Based on your entire payment processing balance.
[00:16:49] Now, I’m not saying that everybody should go do that, but in a time where you actually need access to cash and you can click a button and get the loan and deploy the cash into your business the way you want it, it could be an interesting idea. The ninth system is next-generation training. Here’s why you should never pay your children to do chores.
[00:17:06] Chores create a negative connotation for work. If the only thing that children think about is that they have to do the dishes or take out the trash to get paid their allowance, it creates a significant negative association for the work and effort for the future. If we had adult children, we wouldn’t just tell ’em to take out the trash and pay them $10.
[00:17:23] We would encourage them to learn new skills or go get a job. That’s exactly what I did with my daughter, Laura, when she was six to seven years old, just like every other girl. She loved rainbows and unicorns, and so we built. An e-commerce site called 100 unicorns.com. It taught her how to start a website, how to source products where you get them from China and build an entire business out of it that actually made money.
[00:17:45] She realized that creating value in the marketplace is what got her paid. She was willing to put the extra effort in on the weekend to build something that was truly hers. We did something different with my son Neil. He loved to read for every book that he read, we gave him $50, not in cash, but in the ability to invest $50.
[00:18:02] So every time he finished reading a book. He got $50 to invest and learn how to invest in the stock market. And now over the last many years, he’s developed the skill of becoming an investor, which you’d have never gotten the chance to do any other way. The goal is not to create a system for our children to do chores, to earn their allowance.
[00:18:18] Our job as parents is to teach our children the skills to be able to take over for us in the next generation. And there’s three important things when it comes to the next generation’s value creation. The first. Is their passion. Most families, when they get wealthy, they just let their kids do whatever they want.
[00:18:34] They let them do dance and let them have YouTube, and they let them fund their lifestyle. That is important because it keeps them interested in the game. But there’s two other important components. One is skills. We have to teach them how to work, not to do chores, but to give them a reason to put in effort and create value in the world, and it can do it in very small ways.
[00:18:51] And the second is to teach ’em the skills of money. Is to help them understand how money works so that they can be good stewards of it in the future. The third most important thing is our character. When you can have education, you learn to become a better citizen of the world. And being a better citizen of the world ties to philanthropy, which is just the art of giving, because when you know that there’s something more than yourself, there’s something bigger than yourself.
[00:19:12] To actually aspire to and to give. They are better trained for the next generation to take over. Now that you’ve seen the systems that keep wealth alive across generations, there’s one question you have to answer first. Why do some people never build real wealth?
[00:19:32] Hey, this is Sharran. I have an awesome free gift for you just for listening to the podcast. As you may know, I’ve got a chance to build $2 billion companies the hard way. So if you like this episode, you’ll love getting the exact playbooks from those wins. It’s on my Substack, called My Next Billion. It has the exact frameworks I wish someone had given me when I was figuring it all out. Now you get the real lessons from the trenches as I go for a three-peat and build the next billion. So everything’s free at mynextbillion.com. Please check it out at mynextbillion.com.