More than half of the ultra-wealthy are aged between 50 and 70. Many have already retired or are planning on doing so soon. But as business owners start taking a step back from their managerial roles, succession plans are all too often overlooked, fragmented or lacking in formality. With personal matters and business matters impossible to separate, many families see the future of the company as a subject best left untouched. And as a result, many estates are at risk of a thorny succession.

The largest ever intergenerational wealth transfer is currently taking place. Yet research shows almost a third of ultra-wealthy family offices1 have not planned for succession. Where there is no formal, well-considered succession plan in place, many families are left to tackle cross-border disputes and court cases, as well as unpleasant disagreements with relatives.

For those in the ultra-high-net-worth category, where just 37.8% of wealth2 is held in liquid assets, dividing the estate between beneficiaries is challenging and time-consuming. It is even more complex for estates involving businesses that are intended to stay in the family. In these situations, beneficiaries’ responsibility stretches beyond how to spend, save and invest their inheritance and becomes taking on a managerial role in a business they may or may not have experience running. So, why is formal succession planning so far down the list for the ultra-wealthy and business owners?

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A third of ultra-wealthy family offices have not planned for succession. Where there is no formal, well-considered succession plan in place, many families are left to tackle cross-border disputes and court cases, as well as unpleasant disagreements with relatives.

The unspoken rule

Wealth remains an unspoken topic for many families. A UBS report found that 37% of family offices3 feel uncomfortable discussing sensitive matters. It is understandable. For many, dividing wealth highlights tensions and fractures in relationships. Even when wealth is divided equally, the decision may feel unfair in some situations, for example, where children haven’t been in contact for a number of years.

For some, the reluctance to formally plan their succession is rooted in scepticism towards the next generation. Nearly half of respondents in the same UBS survey said their successors were underprepared to handle the responsibility of managing their inheritance. This doubt is even more stark where family businesses are tied up in the wealth and need to be taken over.

Choosing the heir to the family business

Estate succession brings together emotions with money – even more so when a family business is involved. When the wealth originator has spent decades building their business, they are understandably nervous about passing on the responsibility of managing it. Survey results confirm this sentiment4, with 57% admitting to doubting their heir’s managerial competence and 63% mistrusting their heir’s commitment to the business.

Likewise, successors may have different levels of interest in the family business. Some have joined the firm and already taken on this responsibility, while others may have taken a different career route and be underqualified for leading the family business. Given that the average successor takes over the family business when they are 45 years old3, many heirs will be enjoying their own career by the time of succession. It is also reasonable to expect inheritors to change their mind as their personal and professional life evolve.

Just as wealth originators should have a choice over the prospects for their estate, beneficiaries should also have a say in their future. But with much of the family’s wealth likely tied up in the family business, any beneficiaries who opt not to take an active role may feel their fellow beneficiaries have inherited a golden goose, while they have inherited a finite amount. Having open discussions about the estate and the business is vitally important to give everyone the opportunity to make informed choices – however difficult these conversations may be.  

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Just as wealth originators should have a choice over the prospects for their estate, beneficiaries should also have a say in their future.

Addressing the complexity head on

Succession does not just affect the beneficiary’s wealth. It also impacts the family business. Poorly considered decisions could impact the managerial position and put jobs at risk, affecting employees’ lives too. Having a clear plan for who takes over the business and a detailed transition process in place will protect the business and give the owners confidence in its future.

Although dividing illiquid wealth that is tied up in the business will always be a challenge. If the aim is to avoid selling assets, succession planning needs to begin early and undergo regular reviews as the value of the business and other assets change over time. And in order to adjust to the changing circumstances and goals of the beneficiaries.

Succession planning is complex, especially for family businesses, but innovative tools can help ensure equality, choice and security for everyone involved. Using flexible wealth planning solutions, it is possible to allow for liquidity pay outs for heirs who won’t be inheriting the family business. Not only does this flexibility help smooth the succession process; it gives heirs the security and freedom of choice they need to determine their own future.

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