Over the next 20 years, the world will see the greatest ever transfer of wealth, with $84 trillion1 expected to pass down to younger generations in the US alone. Yet, according to a recent report by investment firm UBS, 40% of wealth owners interviewed do not have a formal inheritance plan in place and more than half have not fully shared with their family how much they are worth, and where their assets are located2.
These statistics neatly summarise both the opportunities and challenges facing wealthy individuals and their family in ensuring a smooth transition. While the wealth current owners have built and can provide security and comfort for future generations, if the transition is not handled properly, it risks creating tensions and ultimately pushing families apart.
Each family is unique and passing down wealth to the younger generations requires a careful balancing act between the wishes and the legacy of the wealth creator, the aspirations of the younger generation and the willingness of each family member to play its part. Planning, education and coaching is essential and with it the willingness to be open to discussions and an understanding of each stakeholder’s aspirations.
While succession planning is often a complex process, it is generally the easier part of the picture when compared to navigating family dynamics and the differing perspectives of the younger generations who are set to inherit.
Squaring these apparent conflicts may be easier with the help of a skilled, experienced, independent facilitator to support discussions and engage with different members of the family. After all, there will be much common ground around the shared objective of ensuring the long-term preservation of wealth of the next generations. But starting conversations and finalising plans can prove difficult. An independent facilitator with experience, tact and sensitivity can act as a vital bridge between different generations.
While much of the responsibility for succession planning rests with the head of the family, it is important to make sure that those who will be inheriting the wealth have the skills, tools and understanding to take on the responsibility that comes with it. To help with this, formal and practical wealth management education should be considered. Examples as the form this could take: a specific programme in a financial institution devoted to the young generation, time spent in the family business, attendance as an observer at relevant company board meetings etc. There is no one size fits all solution. The training and coaching must be bespoke tailored to the concerned individuals and goals of the family and participatory. What matters is that the younger generation understands early on the mechanics of, and the potential impact wealth will have on their lives. Equally important, is the understanding they can anticipate their wealth preservation and creation to suit their own ideals without sacrificing the commercial element. In a recent partnership with the University of Zurich, Accuro was able to help provide younger generation with training in sustainable investing. This not only ensured the desired social impact these young individuals wanted to achieve but ensured that all members were engaged and committed to the same goal of preserving wealth and maintaining family legacy.
It has become increasingly popular to bring the family’s objectives together in a Family Charter, which lays out the family’s long-term objectives, succession plans and values. This can ensure that there is a single guiding framework around which all decisions are made. Accuro can play a valuable role in consulting with family members to help them agree on a route ahead that everyone is engaged with and agreed on.
Having set the route, mapping out the journey and then following it step-by-step is the next stage. Key to navigating this path successfully is consolidating all the relevant information so that the details and documentation on assets are held centrally. Having a single central point of reference can help to ensure assets are constantly monitored and that channels of communication are open. At the same time, security and access can be strictly controlled. Clearly, the ability to act on the family’s instructions with impartiality is essential.
The real danger of the great wealth transfer is that current wealth owners may not have the right processes in place to facilitate a smooth transfer, and younger generations may not be properly prepared to take on the mantle. Both these barriers risk diluting wealth, reduce harmony and erode legacy. Getting it right means ensuring the preservation of your family wealth for generations to come. An outcome that requires planning today.
For more information about our bespoke private office services, please contact Stephen Weaver.
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