What Is Generational Wealth? A Definition for High-Earning Parents

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Generational wealth is money and property that outlasts the person who built it and keeps supporting the next generation, and ideally the one after that. It is not the same as a high income or a single large inheritance. Wealth becomes generational when three things pass down together: the assets, the legal structure that holds them, and the judgment to manage them.

For a dual-career household in California or Washington earning $750,000 to $3 million, the first part usually takes care of itself over 15 to 20 years. The second and third parts are where most families with young children are behind, because nobody has written down how the parents think about money, work and giving.

Generational wealth compared with income, net worth and an inheritance

These terms get used as if they mean the same thing. They do not, and the difference shapes what a family actually needs to do.

A household earning $1.2 million a year can have very little generational wealth if most of its net worth is unvested employer stock, there is no trust, and the children have never seen how a money decision gets made.

Examples of generational wealth, and what does not count

Examples that usually count:

• A diversified brokerage portfolio titled in a revocable living trust, with a named successor trustee and written instructions.
• A home owned outright or with a modest mortgage, also held in the trust.
• 529 plans that pay for college or graduate school without debt. That is wealth transferred as opportunity rather than cash.
• Retirement accounts with current beneficiary designations that match the estate plan.
• A written record of how the family makes decisions about spending, giving and risk.

Things that look like wealth but often are not generational on their own:

• A large salary. It ends when either parent stops working, becomes disabled or dies.
• Unvested RSUs. What happens to them at death or disability depends on the plan document, and many families have never read theirs.
• A concentrated position in one employer’s stock with no plan to diversify. One bad year for one company can undo a decade of saving.
• Money left outright to children under a UTMA account, which in California transfers to the child at 18 by default, or as late as 21 for a lifetime gift that sets that age (Cal. Probate Code §3920.5). See what happens to a UTMA when the child turns 21.

Worked example: what generational wealth looks like on a $1.2 million W-2 income

Assumptions (illustrative, not a forecast): a married couple, both 42, with children ages 4 and 7. Combined W-2 pay of $1.2 million including RSUs. Net worth today of $3.5 million. They save $250,000 a year for the next 20 years and earn a 5% return after inflation.

1. Growth of what they have today. $3.5 million growing at 5% for 20 years becomes about $9.3 million in today’s dollars.
2. Growth of new savings. $250,000 a year for 20 years at 5% adds about $8.3 million.
3. Total at 62. About $17.6 million in today’s dollars, when the children are 24 and 27.
4. Split between two children. About $8.8 million each, if nothing is spent in retirement (in reality some will be).
5. Split again. If each child has three children and adds nothing, the same money is about $2.9 million per grandchild before growth, spending or taxes.

Two lessons come out of this. First, the dollars are real: by retirement this family has more than enough to change their children’s lives. Second, money alone dilutes fast. It halves at the first split and divides again at the second. Wealth lasts when each generation adds to it, and that depends far more on judgment than on the starting balance.

How the same family is taxed at death in California and Washington

For 2026 the federal estate and gift tax basic exclusion is $15,000,000 per person, made permanent by the 2025 tax law and indexed for inflation from 2027 (IRS). A couple with about $17.6 million is below the combined $30 million for both spouses, so federal estate tax is unlikely under current law. Using both exclusions generally requires either trust planning at the first death or a portability election, which is made on a timely filed estate tax return for the first spouse to die (IRS). There is no scheduled 2026 drop to about $7 million; that claim is out of date.

State law is where the two states split:

• California has no state estate tax for deaths on or after January 1, 2005 (State Controller). Its estate tax law only collects a share of the old federal credit for state death taxes (Rev. & Tax. Code §13302), and that credit no longer exists. The bigger California cost is probate. Assets outside a trust go through a court process that is public, slow, and carries statutory attorney and executor fees calculated on the appraised value of the estate property without subtracting mortgages or other debts (Cal. Probate Code §10800, §10810), so a house with a large mortgage still counts at its full value.
• Washington has its own estate tax with an exclusion of $3,000,000 for deaths from July 1 to December 31, 2026, and rates from 10% to 20% on the taxable estate above that (WA DOR). For the Seattle version of this family, if the whole $17.6 million were taxed at the second parent’s death and the 2026 exclusion still applied, roughly $14.6 million would sit above it. Treat that as a rough scale check, not an estimate: the exclusion and rate table can change before then. For Washington families, estate planning is a tax question as well as a control question.

One more federal rule matters for both states: inherited assets generally take a basis equal to fair market value at the date of death (IRS Publication 551). Highly appreciated stock held until death can pass to the children without the built-in gain being taxed, which is one reason families think carefully about which assets to sell during life and which to hold.

Why generational wealth often fades by the second or third generation

You may have seen the claim that roughly 90% of wealthy families lose their money by the third generation. That figure is repeated widely but is hard to trace to a solid study, so we do not lean on it. The pattern behind it is real, though, and it has three causes:

• Dilution. The split math above. Each generation has more people sharing the same assets.
• Friction at transfer. Probate, state estate tax, outdated beneficiary forms and accounts nobody can find.
• Missing judgment. Children who inherit money without ever having watched their parents reason through a decision tend to spend it, hand it to the wrong adviser, or freeze.

As Kevin Luu, Co-Founder and Chief Learning Officer of Bright Advisers, puts it: “The Vanderbilts passed down money. The Kennedys passed down their thinking.”

The legal pieces that turn assets into generational wealth

For a California or Washington family with children under 12, the usual building blocks are:

• Wills that nominate a guardian for the children. Without a nomination, a court chooses a guardian with no written guidance from you.
• A revocable living trust that holds the home and brokerage accounts, keeps the assets titled in it out of California probate, and sets the ages and conditions under which children receive money, instead of a lump sum at 18 or 21.
• Beneficiary designations on 401(k)s, IRAs and life insurance that match the trust. See naming a trust as beneficiary of a brokerage account.
• Lifetime gifts. For 2026 each parent can give $19,000 per recipient without using any lifetime exclusion, or $38,000 per child as a couple. A 529 five-year election lets each parent put up to $95,000 into a child’s 529 at once ($190,000 as a couple), reported on Form 709 (Form 709 instructions, Rev. Proc. 2025-32).
• Term life insurance sized so that the plan still works if a parent dies while the children are young and most of the wealth has not been built yet.

Our estate planning work coordinates these pieces with the family’s estate attorney.

Decision checklist for parents of young children

1. Do we have signed wills naming a guardian, and does the guardian know?
2. Is the house and taxable brokerage account titled in our trust?
3. Do all beneficiary designations match the trust?
4. At what ages, and on what conditions, should each child receive money?
5. If we live in Washington, how much of our projected estate sits above the state exclusion?
6. How much of our net worth is one employer’s stock, and what is our plan to reduce it?
7. Have we written down how we make money decisions, so our children can read our reasoning later?

What to document for your children

The legal documents say who gets what. They do not say why. For each major decision (buying the house, how much to give, when to sell RSUs, whether to pay for a car at 16), a one-page note on what you chose and why gives children something to learn from long before they inherit anything. Busy parents can do this in a short monthly session and keep the notes in one place, which is the idea behind the FamilyKnowledge® Library. Our family governance and Age Five Wealth Education services are built around that habit.

Frequently asked questions

How much money counts as generational wealth?

There is no dollar line. A useful test is whether the assets could keep supporting your children’s education, housing or security after you are gone without being used up in one generation. For many high-earning families that is several million dollars, but structure and the children’s judgment matter as much as the amount.

Does California have an estate tax?

No. California has no state estate tax for deaths on or after January 1, 2005, because its estate tax only applied through a federal credit that no longer exists. The federal estate tax can still apply above $15,000,000 per person for 2026. The larger California cost for most families is probate on assets not held in a trust.

Is it too early to think about this with children under 12?

No. Guardianship and a trust matter most while children are young, because that is when a parent’s death would be most disruptive. It is also when children begin forming their beliefs about money, so documenting your reasoning early gives them more years to learn from it.

Next step

Write down your current net worth, how it is titled, and who is named on every beneficiary form. If those three lists do not match your intentions, start there. If you want a second set of eyes, our Tax & Wealth Assessment reviews all three with you.

This is general education, and the right move depends on the family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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