In this episode we discuss intergenerational wealth and what plans you can make for your funds and your properties for when you’re no longer around. We’ll talk about intergenerational wealth and how you can best help your kids— and their kids— with the property you have today, without fostering entitlement. Kulkarni also gives some ideas on how to support your adult children to make their move onto the property ladder for themselves, and tells some stories she’s witnessed in her time of people coming into sizable estates and not knowing where to go from there. She’s seen more than a few people make mistakes when it comes to inheritance, and we don’t want you to become one of those stories!

Timestamps:
00:56 | May the Odds be Ever in Your Favour
02:24 | Time to Talk
04:51 | Start While They’re Young
09:35 | Priority #1
10:20 | Use it Wisely
16:45 | The Power Has to Go Somewhere
19:07 | The Family Office
25:14 | Converse, But Cut the Conflict

Resources and Links:

[00:08:20] And so, the conversation, it's not heavily spoken about, but there's an understanding that if you want to be financially independent, you've got to put in the hard yards and do the work. And one of the things that's really, it's such an interesting topic is, as a parent, how much of a leg up, or how much support do you give your child? 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode we’re speaking with Amazon bestselling author, chartered accountant, and founder of the Freedom Warrior program, Salena Kulkarni. We’ll hear about the various structures built around preserving wealth, and how you can best help your children understand how to do the same, starting from as young as five years old!

Tyrone Shum: 

Kulkarni is passionate about helping people pass on their wealth to future generations through property. She begins unpacking intergenerational wealth with a general overview.

Salena Kulkarni:   

[00:00:56] It's such a fascinating topic. And I think I want to pre-qualify everything that we discuss in this podcast with the asterix of studying how people successfully pass on and create intergenerational wealth has been a real passion project for me for the last 20 years. And I've read lots of books and I've spoken to people who run family offices, and I've spoken to people who are second and third generation recipients. So I've got a very broad picture of what it takes and how to make it work. 

[00:01:37] But I think what I would add to that is creating intergenerational wealth is really— if I'm hand on heart— it's about stacking the odds in your favour. There's no guarantees. People constantly ask me, 'How do you structure from a trust and company and beneficiary point of view, to preserve wealth?' And the truth of the matter is that if the recipients wanted to, they could blow it up if they weren't educated or didn't have the wisdom. So I think this conversation about creating intergenerational wealth is really about how do you stack the odds in your favour? And I think anecdotally I've got a lot of ideas. But I don't think there's one right way.

Tyrone Shum:   

[00:02:24] Well, maybe let's just take one path down and think what would you do if— and I'll just throw this maybe example in— is you're looking to pass on your portfolio of properties to your children. And they may not be educated, but they know that there is a big chunk of equity inside, and most of the portfolios are generating quite a bit of wealth and throwing off. And touch wood this doesn't happen, but for whatever reason, something happens to us as parents, and it has to get passed on to the kids, but they don't know too much about it. What would you do to set that up to help them guide them through?

Salena Kulkarni:  

[00:03:09] It's a really interesting topic. I think if I were to pick one thing that I think has the biggest impact on your capacity to create wealth that lasts 100 plus years, it's about the way that you talk about money in the house. If you speak to people about how were they raised, was money spoken about, you get people at both ends of the spectrum. You've got people who money was a taboo topic and never talked about in the home. And then at the other end, you've got almost like an obsessive discussion around money at the dinner table. 

[00:03:48] And so I think having decisions around how are you going to help foster a healthy relationship for your kids, or your nieces and nephews or people that you care about? How are you going to foster a good relationship with money? Because what I have witnessed, and what people tell me is that if you don't have that conversation, if you don't imprint your worldview about money onto your kids, they will get it from elsewhere. They'll get it from their friends at school, they'll get it from whoever. 

[00:04:08] And so just being really mindful not to... even throwaway phrases about how you feel about money. Kids are just sponges and they just absorb it. So I think trying to work out what are my money values, and how am I going to educate and convey those to my children or people I care about is probably the fundamental, the most critical factor.

Tyrone Shum:   

[00:04:51] It's actually good that you raise that up because it makes me think as well, too. Because my kids are still quite young. They don't really understand the value of money except using it to buy toys. Which is still at that early stage. But I think I'm quite, in my sort of personality is that I'm more of a strong saver. So I keep encouraging them to think about saving money. 

[00:05:11] And my son understands a little bit about cackling and money, because he's quite smart in that sense, but he's always wanting to use it to go and buy toys. Because what seven or eight year old doesn't want to? Once they've got a bit of money, they're gonna go buy something with it. But I think, to explain to him the value of it is saying if you've got $100, and you're going to spend $80 to buy one toy and you've got only $20 left. Next time, you might not have that much money to be able to buy the next thing you want to do. So think about how you're split it up carefully. I instil those kind of ideas and principles with him. 

[00:05:45] Whereas I, myself, at a very young age— I'm just talking from experiences my dad has sort of instilled in me— and because I grew up in a family where at the dinner table, it always talking about what's happening in the business. Because Dad operated a business for more than two or three decades. Around the dinner table we'd come home and he'd be talking about what's happening with that supplier, what's happening with that customer. 

[00:06:07] And it was kind of just natural talk all the time. So we're gonna pick all these things up, and I ended up picking up a lot of saving skills and conversations behind this thing. Okay, how do we reduce that to increase the profit margin for this and yada yada, yada. In the end it kind of did help me with where I am now, because it helped me to understand about the power of saving, then also the power of investing that money. Every dollar that you can earn or save, and put that away and let that money work for you helps you leverage up to be able to do a lot more things. And that's been the beauty of having that conversation. 

[00:06:40] So coming from that personal experience, I definitely can see how it's helped. But I'm also wondering how the kids also understand the value of money in today's generation. Because with, coming back to property, the value, especially in the most recent boom, I guess you can say, across Australia, we've seen property prices reach anywhere up to $2 million on average now. And you think, how are our kids, our future generations, going to be able to afford to even just buy a home? Not many young kids have $2 million in cash, or even maybe a 10% or 20% deposit to be able to afford something like that. So how do we consider that for the future into the generational wealth for them to be able to leave as well?

Salena Kulkarni:   

[00:07:26] It's definitely true what you're saying, affordability has become a pretty scary thing. And who knows whether that trend will continue, or whether it will plateau out. I think the truth of the matter is that people can only afford what they can afford. And I think this is where education is super, super important. And it's great that you're having conversations with money with your children. I did the same with my kids from a very young age. The seeds that I planted with them, probably when they were after the age of about five is that owning investments and owning real estate, which pays you money, is what will give you the freedom to choose the life and design the life you want. You're never having to work for the money. Work because you're passionate about it, or whatever. 

[00:08:20] And so, the conversation, it's not heavily spoken about, but there's an understanding that if you want to be financially independent, you've got to put in the hard yards and do the work. And one of the things that's really, it's such an interesting topic is, as a parent, how much of a leg up, or how much support do you give your child? And there obviously isn't a right and wrong answer here. But I've seen some fabulous examples of really creative ways that as a parent, you can support your child and help them into the market. 

[00:09:00] And it could be that down one end of the spectrum, you say to them, 'You buy your first one on your own. You go and get two or three jobs when you're 18 or 19, or whatever. And you just get your foot in the door. And when you can demonstrate to me that you've got the wherewithal to get started, then we can work together on other deals.' Or maybe you help them from the get go, maybe you go half-half, maybe you help them into their first deal. Or maybe you buy them their first property. There's all sorts of things and there's no right or wrong. 

[00:09:35] But what I think is important is trying to educate your future recipients on how to grow wealth. That has to be highest priority. Because what I've witnessed over my last 20 years is people being the recipients of quite large, sizable estates and then going, 'Well, I don't really know the purpose of holding real estate or how to do anything with it.' And so what they end up doing is they sell. They can't afford to hold the property, they need the cash for their life, maybe the asset isn't throwing off in cash flow, and they don't know how to tweak it so that the wealth gets preserved. 

[00:10:22] One of the topics that I'm really passionate about is I'd love to see people getting wealthier, as each generation goes, and unfortunately, what I see over and over is you make the money, it gets passed on to your kids, the kids blow it up, and the next generation has to start again. 

[00:10:21] And I know people who are grandchildren who are our age, who basically are the grandchildren of people who amassed huge property portfolios. And now as the grandkids in their 40s and early 50s, they have nothing to show for it. Nada. And they're starting over. And this is after their grandparents had bought what would be tens of millions of dollars worth of property today. And so that is heartbreaking. 

[00:10:21] I think we talked about this before we started today, if you're going to think about creating wealth that's intergenerational... legacy, from my perspective, the word legacy, all it means is influence. Financial influence, from a financial point of view that is. And so if you want to create financial legacy for your family, you've got to educate. 

[00:10:20] Like in that story that I tell sometimes, there's two brothers, same family, same upbringing, one becomes a school teacher, the other one is a very successful business owner. He creates a multimillion dollar business and on his death, he passes $10 million down to his three children. The other brother becomes a school teacher, doesn't earn huge amounts of money, but is much more vigilant around the way that he... you know, his stewardship is excellent. And he passes down a really small annuity of $30,000 to his kids. 

[00:10:21] And then after a period of time, they go back and they check in and basically, the kids who inherited the $10 million, it's mostly gone. The kids who inherited the $30,000 annuity have gone on to considerable success in their own right, because they've used that as a springboard. And so what I say to people is: Don't worry. People I speak to worry about how much money they're leaving behind. And my suggestion, my gentle suggestion is focus more on the wisdom that you're leaving behind. Because if they've got the wisdom to take whatever you leave and amplify it and preserve it, that's going to be far more valuable than just leaving them a lump of capital, which could be dissolved or sold or lost very quickly.

Tyrone Shum:   

[00:13:18] So true. And it does make sense if you kind of think about it. Maybe an example would be like Lotto. If you've been living an average life, and you've been earning the average wage and so forth for 20 or 30 years of your life and then suddenly you get a windfall of like $20 million dollars from Lotto— you go, 'Wow, this is fantastic. What am I going to do? Firstly, I'll go spend it.' 

[00:13:40] And then you'll start to have more people who might know that you've won Lotto come up to you and ask for money as well. And you think, 'Oh, there's a lot of money.' But it's so easy for that $20 million to be all spent and used, because you don't know how to use it wisely. Whereas if you've had the knowledge to say, 'Okay, if I'm going to actually take that amount of money and invest in things that can actually grow, and then use it to obviously enjoy as well parts of it, then that could potentially be grown out to be a lot better in the future as well.' So that knowledge is so, so important. 

Salena Kulkarni:   

[00:14:19] I think the knowledge is really important. And I think a little bit of hardship is okay. I think we tend to want our children to avoid any hardship. And I have a close friend in the States who comes from... he's third generation intergenerational wealth. And he told me that when he was growing up, the attitude inside his household was, ‘You've got to make your own way first. The family wealth will always be here. But you've got to find your own way.’ And he's so, so grateful for that learning. 

Coming up after the break, we delve into the problem of entitlement and how to avoid it...

[00:14:54] I think we don't want our kids to suffer, we don't want them to struggle maybe the way that we did. But at the same time, if you don't allow your kids to have a little bit of heartache and pain around finding their own way, then that's when you end up with this issue that a lot of people are concerned about, which is entitlement.

The issues that can crop up around inherited wealth...

[00:17:40] And what I have also witnessed is siblings who can't agree. And so that becomes a point of contention as well. 

We discuss how to start the search for the best team of advisors for you and your family.

[00:22:12] I think there's a number of ways you can do it. But there's lawyers that specialise in estate planning. There's accountants that specialise in estate planning. So finding people in either of those spaces, but recognising they don't have the full picture is important. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Kulkarni discusses some of the ways you can help your kids through their struggles, without holding their hand too much along the way.

Salena Kulkarni:   

[00:14:54] I think we don't want our kids to suffer, we don't want them to struggle maybe the way that we did. But at the same time, if you don't allow your kids to have a little bit of heartache and pain around finding their own way, then that's when you end up with this issue that a lot of people are concerned about, which is entitlement. How do you stop your children expecting that you're just going to pass your wealth on to them, so they don't have to try that hard? It's a tough balance. And I think the wisdom is important, but I also think while your kids are young enough, letting them suffer a little bit, or letting them strive, so that they are going to be much more resilient and wise around money later.

Tyrone Shum:   

[00:15:50] Absolutely, and giving them that experience, because if they don't go through hardship, they won't ever experience what it's like, because that's the real world out there. As parents, we also want to shelter our kids so that they don't go through hardship, or experience the bad things. And that could not just be for money, but also, too, for even just even just going out to the real world to work and do certain tasks and so forth like that, if they don't experience what it's like to be in the real world, they'll never ever grow. So it's the same principle in many ways. 

[00:16:21] I did want to also ask you a little bit more about protection, though. I mean, there's reasons why we set up trusts and there's reasons why we have that passing on to our kids. But is there any way that can be put in, say, for future generations, for them to only access the funds at a certain level or certain way? Or is that basically, once it's been passed on, you kind of have absolutely no control, even when you've passed?

Salena Kulkarni:   

[00:16:45] It's definitely an interesting topic in terms of how do you use structures to protect the wealth. And what I would say to you is, I think there's structures which are tax effective, there are structures which offer asset protection. But ultimately, when you're gone, when you're not around, the decision making powers have to go somewhere. And that's why I say that I've seen people who have gone to the nth degree, to structure so that say, for example, their child makes a poor marital choice, or whatever, the assets are protected. And that's one part of it. But then what happens if the recipient just decides to throw it all away, like, let's just sell it all, like, let's just divvy it all up. 

[00:17:40] And what I have also witnessed is siblings who can't agree. And so that becomes a point of contention as well. And so one of the things I really encourage my guys to create is what I call a family investment charter, which is kind of like a... it's not so much a legal thing, it's more of a, here are kind of the general rules of the game, and all the components that could possibly be part of that. That's how you play the game. 

 

[00:18:13] It's more of an intent. We could talk for hours on that one, but I think legal structures give you part of the solution. And there's some clever people out there doing some clever things. But what I know for sure is that the ATO are methodically sewing up every single loophole that they can find, to make sure that no one avoids tax, and that's understandable. But I think good structuring, in tandem with education, wisdom, making sure you are surrounded by a network of advisors who can help you navigate and keep the wealth together and intact is another piece as well.

Tyrone Shum:   

[00:19:07] It's it's really, really important, education is part of it, I think that had to be instilled at a very, very young age as well, too, so that they can actually know that by the time they reach a mature age, that they can make their own decisions, that they already know what to do, and they can follow the footsteps. But also, too, what you mentioned that I think was very important is having trusted advisors around. And hopefully, if there is a point that you can pass on those trusted advisors to kids as well, it would definitely be helpful. Because obviously these trusted advisors would probably also pass as well in our generation. And hopefully, they would be able to have either future generations taking over their advice and passing on their businesses so that they can also help our families as well. It's a big topic.

Salena Kulkarni:   

[00:19:55] Yeah, and just on that as well, like there's a concept called the family office, which you may or may not have heard about. And it's where high net wealth individuals go to the effort of setting up their own private office with legals, accounting, all the finance and investment management, in basically an organisation that exists for the sole purpose of managing family wealth. And obviously to do that you need to be worth a fair sum of money to justify that. 

[00:20:27] And there's lots of permutations that exist around that. For example, family offices that can potentially work with multiple, high net worth individuals. So I think there's lots of different ways to skin the cat. And what I really want to emphasise is you don't need to be worth $100 million to justify the need to surround yourself with people who can support your wealth preservation goals. You're right, in one generation, let's say you've got a great accountant, and they're obviously not going to be around. But if you educate your recipients on how do you find a great accountant, like, what should you be looking for, then that goes a long way towards making sure that when the person that you've got right now in that seat isn't there, or maybe you've got multiple people in that seat, that they know what to look for.

Tyrone Shum:   

[00:21:24] And this kind of leads on to sort of more estate planning as well, too. Especially with property investors, I'm sure that a lot of them have focused a lot and heavily on investing their properties and building up their structures and talking to accountants and legals and stuff. But I don't think there's enough that we, even on this podcast, have covered much about estate planning. What things would you suggest or look into for estate planning, if that's something that you've done? Because obviously, we just talked a little bit about passing this on, but you've got to also discuss and talk to the right advisors on how to structure these as well. And we're not giving specific advice on how to go do it, but who would you recommend to speak to? Where would you start? That's a big question mark, for me as well, too.

Salena Kulkarni:  

[00:22:12] I think there's a number of ways you can do it. But there's lawyers that specialise in estate planning. There's accountants that specialise in estate planning. So finding people in either of those spaces, but recognising they don't have the full picture is important. Where I'd tend to focus my energy is more in the practical mechanics of how do you pull it all together? So how would you create a family investment charter? How do you communicate with your children? How do you educate them? How can you be really creative? To make the rules of the game fun and engaging? How do you manage the spouses of people coming in? Like, how do they participate? 

[00:23:03] And so it's not the legals and the mechanics, it's more around the softer sort of skills. And to be frank, there's not a lot of content out there on that subject. There's plenty of opinions on how to structure for intergenerational wealth, how to make sure legally things happen the way they do. But as I said, I think all the legals and whatever in the world, they don't account for personalities. They don't account for real life crises. They don't account for potentially the fact that not all siblings are made equal. Not all kids are born with the same skills. You could have five children in one family, and one of them's got amazing strength around money, and the other four don't. What do you do? 

[00:23:53] And so those are the sorts of pragmatic type conversations that I think people fail to have, because most people are just talking about how do you structure and who do you go to for that? Rather than thinking what's the strategy or strategies that we need to think about to make sure that we give every chance that $1 that we put into our wealth bucket today is still there in 100 years? Which is what we talked about before.

Tyrone Shum:  

[00:24:31] It's so true. It's something that is not talked about a lot, and it's not something that a lot of us really think about, because it's so far in the future. You know, you touch word that you've still got many, many decades ahead of us to live. But when you start thinking about the changes that's happening in our society, the generations that are coming in fourth, you need to start thinking more and more about this as we're getting older and older. 

[00:24:53] And it's kind of made me think, I've got four siblings, including myself in my family, and we've never really got together to talk about it. And my parents are becoming of age, they're getting a little bit older. And I don't even know how we'd raise a conversation like that with them, now I think about it. Have you ever come across that for yourself or other clients? 

Salena Kulkarni:  

[00:25:14] Oh yeah. So this is exactly what I'm talking about, like, how do you have those conversations? How do you set aside time to have the conversations in a way that people feel heard? There's an agenda. To some degree, it can be conflict resolution 101 in some families. 

[00:25:37] But I think the point is that it is really useful to raise the topic and find out where people sit. Is it worth us getting together as a tribe and trying to...? One thing I really admire is that there are a lot of ethnic communities that have migrants that have come to Australia. And they've banded together as a community to build wealth. And whether it's within a family or within, say, for example, a community. 

[00:26:11] I remember, I had a girlfriend, who's still a dear friend of mine, from the Vietnamese community, and she came here as a refugee. And her mother, father, and a series of Vietnamese families got together and created a little bank for themselves. And they would lend, they had a whole set of rules around how the money got lent out, and what that looked like, and how it had to be repaid. But they created a mechanism for building and supporting each other as a community. 

 

[00:26:46] And, you know what, that's really what we should be doing inside our families. I think it's awesome, the idea of building wealth, as a tribe of some variety. I think, unfortunately, in the Western world, the way that we know it, it's kind of every man and family for themselves. Man and woman, I should say. It's once you've got your own nuclear family, that's the extent of your wealth building capacity. And it's probably another reason that we're not getting wealthier. From generation to generation our idea is, once we're in our own little bubble, or our own little family, that the financial well being is about how do I look after my family. Whereas if we kind of got together with our siblings, and our parents, and whatever, we could kind of go well, like in your family, Tyrone, he's got all the skills, he's got all the relationships, let's see what we can do together as a tribe.

Tyrone Shum:   

[00:27:53] I really like that. And it's really changed my perspective on this, because we had very brief discussions in my own family as such, and we've got a large, large, extended family as well. And I've tried to bring them all together as well, at one stage, because we were running all very much a very similar family business. And we thought, 'Why don't we just put our heads together and put everything into one? Because it makes more sense, we can get a lot more buying power, etc.' It didn't go ahead, because everyone has different shares in different so forth. But just thinking about my own siblings, for four of us, and as we're growing older, I think the big question that would probably come back is, why are we all coming together to ask this question now? Because it's not like my parents are gonna be passing away in the next couple of years or something. But I'm trying to see how we frame it so it's a positive light. Because it's very easy to get misunderstood, thinking, you just want to get after all our wealth that we've built up to be amongst four kids. But how do you decide is going to get what? Should it be equally split? Or should it be...

Salena Kulkarni:   

[00:28:57] It's a tricky topic. And I think the thing is that when you look up the line to your siblings and parents, it's even more complicated because there's lots of water under the bridge. And so for some families, that's just not reconciled. You can't reconcile that. They can't work out how to get everyone on the same page and start rowing the boat the same way. 

[00:29:21] But you've got much higher probability, if you think of your own little family tree that will evolve. And how can you be someone who influences the kids of your kids of your kids? How can you be the catalyst for something new? And there's so many ways you can be super creative about that, with the technology we have available to us, and I think it's about being open minded and creative.

Tyrone Shum:   

[00:29:55] Yeah, and I guess taking it from a different sort of perspective to say, 'How can we help each other?' rather than say, 'What's in it for me?'

Salena Kulkarni:   

[00:30:05] Totally. And that's often a good way to come at it. If you're an adult with siblings, and there's kids in the picture, like, lots of nieces and nephews and your kids, is talking about it from the context of how could we initiate something for them? And for their kids? That's probably the best way to come at it, I think, if there's any sensitivity.

Thank you to Salena Kulkarni, our guest on this special episode of Property Investory.