Create Generational Wealth
Creating Generational Wealth by Funding Your Own Inheritance!
By Eugene Mitchell, PMC-LLC Coach
A major question for many in our communities is: How can I obtain the $50,000–$100,000, or even $250,000, down payment to buy a home?... to pay for education?... or to start a business? This is especially true during the COVID-19 crisis.
Since the answer to this eludes many of us, it delays or even keeps us from ever acquiring these great financial assets for our families. In doing so we miss the opportunity to take advantage of home-equity appreciation, which can be tapped for cash and tax advantages, and using a home or business as a cherished source of family experiences. There’s also pride that comes from ownership and the creation of a legacy that can be passed from generation to generation.
I have an answer to the down payment dilemma that so many in our communities face. It’s an interesting, creative strategy that I observed other non-Black communities using. I’m here to share it so more in our communities can do so as well!
I witnessed this method at a Fortune 100 company where, over my 17-year career and vantage point as a senior executive, I saw how families (from diverse racial backgrounds) creatively used funds from their insurance plans for lump-sum home down payments. The method may sound simple, but its impact is vast.
The best example I like to share is from one family with 20 members who took out a million dollars in life insurance on their two eldest family members, and the other 18 pooled their funds to pay the premiums. They didn’t view this approach as profiting off of the deaths of these two seniors in their household, but as a way to honor them as the family matriarch and patriarch whose policies created an intergenerational financial legacy.
They used funds from the $2 million policies after grandma and grandpa passed away as well as the cash value built-up within the policies over the years to pay for the college educations of each of the grandchildren, as down payments for homes, and as startup capital for new businesses as the children grew. This forward thinking and planning ensured the family’s financial stability, growth opportunities, and self-sufficiency.
Think about that. That meant that the youngest family members didn’t have to worry about student loans anchoring them down before they even got started on their life journeys. Imagine being able to put down 20% on a property in a gentrifying neighborhood—perhaps a brownstone or multi-unit property that can generate rental income immediately.
The ability to put down a 20% down payment or higher also means eliminating the PMI (private mortgage insurance) mandatory for buyers who can only do deposits under 20%. With a $2 million policy, a family could purchase not one but multiple units and place them into a family trust. Think about being able to start a business with the financial backing of your own family—without bank approval processes, racial biases, or financial collateral.
For the last 20 years, I’ve explored innovative financing methods (primarily leveraging life insurance) and provided tips, tools, and strategies for wealth building in Black communities. The financial services company I worked at for most of my career has been around for 175 years, and I discovered that many families (in non-Black communities) knew how to take advantage of the strategy I described since the inception of my former employer’s firm.
This enabled families and communities who were “in the know” to stay ahead of the game. However, this approach was foreign to many African-American families. This troubled me. Now you know this strategy, too—if you didn’t before! In our communities we can't continue to think that we can simply use education and hard work alone to close the wealth gap. We need to employ these types of deceptively simple, yet savvy, approaches as well.
Creating generational wealth requires a different financial-planning approach, so both current and future generations have access to financing and funding once hidden from us—and at certain points in history even denied to us. I call this strategy: funding your own inheritance.
My sister and I shared the insurance concept I described with our parents, on multiple occasions. Because it was a new idea and way of thinking, we knew it would take some time to break through. Eventually our parents acquiesced, allowing my sister and me to acquire a smaller version of the policy described above, to benefit their grandchildren and great-grandchildren.
We made it clear to our parents that my sister and I already have our educations and houses, so it’s not about us. What we do know is that there are eight children between me and my sister, and five grandchildren, and without this plan we really wondered how we would be able to afford to put all of them through school?
We also wouldn’t be in a position to help them with down payments for their homes (which parents in other communities frequently do). Nor could we encourage them to be entrepreneurs on the level we’d always dreamed they could—and be able to provide seed money. Those insurance policies will enable us to do that.
The wealthy plan for generations. Can you imagine if your grandparents had started doing this? It’s not a problem if they didn’t because, like my parents, most likely: they simply didn’t know. Now that you know, like my sister and me, would you like to explore this concept?
You can find more tips, tools, and strategies like this in my book, Closing the Racial Wealth Gap: 7 Untold Rules for Black Prosperity and Legacy. It is available at https://eugenemitchell.com; I also have a team of advisors ready to assist if you want more information on this strategy and others. If you’d like to set up a complimentary consultation, please email me at eugene@eugenemitchell.com.
Eugene Mitchell is the President and CEO of E. Mitchell Enterprises, Inc., a financial consulting and financial services firm, and the founder of the $50 Billion Community Empowerment Plan (which achieved that number of assets under management in 2017).
