Everyone agrees that having a will is essential, but little attention is paid to how heirs will maintain this wealth after the predecessor retires or dies.
As wealth becomes more substantial and complex in nature, having a family succession plan that defines a clear purpose for the family wealth can ensure a harmonious handover when the time comes.
This crucial step to preserve wealth across generations means that successors can become more knowledgeable about their inherited assets and help to establish a legacy, leaving the predecessors more time to focus on quality time with loved ones or charitable endeavours.
Communication is key
Successful succession planning is based on active family communication. Setting up regular family council and business meetings are key to kicking off the process. This is often a well-established occurrence within a family business, but can also extend to the personal wealth planning and future preservation.
Granted, the conversations about what happens to a business or wealth when a family member dies is not pleasant, but they are essential in aligning a family on a common goal, creating the right structure and being able to revisit and restructure as time goes on.
This safe space allows for each family member to be heard, and, more importantly, disclose any worries they may have.
Having an objective perspective in the succession process can bring great value. Without being swayed by family politics, wealth managers such as London & Capital can offer a tailored service which includes financial advice, tax planning and estate planning, as well as experience dealing with other successful family businesses.
London & Capital can help private clients effectively manage their investable assets through services that include multi-generational wealth planning, as well as support with family board meetings. For clients looking to give back to society, there is also support with philanthropy and grants.
Predecessors and heirs should also be aware of tax and legal factors that can have an impact on an estate. In the UK, an estate worth more than £2 million can have their residence nil rate band tapered. In other words, some families could lose £1 of the additional threshold for every £2 of your estate that exceeds £2 million. London & Capital also offer coordination with legal and tax advisors, so an estate can be handed over with no surprises.
Succession planning should not be left to the last minute. This multi-stage process should ideally be conducted over many years, and prior to an heir stepping up to their new role. By taking time to ensure an appropriate plan is put in place, it is less likely that familial relationships will break down and assets left vulnerable.
This can be more common for businesses or assets that are passed further down the pool or generations, to grandchildren or great grandchildren, where the original owner’s visions or wishes become clouded.
Similarly, it is important to fully prepare heirs that are set to inherit large amounts of wealth. Without financial literacy, heirs can become overwhelmed managing their inheritance, especially if it includes a family business.
America’s once richest dynasties, the Vanderbilt family, is an excellent case in point. It took just six generations to reduce a $100 million fortune in 1877 to almost nothing in 2019 as the subsequent heirs allegedly didn’t understand the long-term vision of the family business or how to manage their inherited wealth responsibly.
It is important that a succession plan includes a form of financial literacy for heirs from a young age. By managing their own expenses and participating in the family business, for example, they can better understand the inner workings and think strategically to identify risks and opportunities.
A heritage statement is also an option. This educates a future heir about the family business and includes the business origin and values, as well as the structure for sharing those values with future generations. It captures the story straight from the leader, eliminating the risk of future generations rewriting this history.