How a family office handles intergenerational wealth transfers

Managing Partner explains what his office does to help business owners transition wealth to the next generation

How a family office handles intergenerational wealth transfers

When Richter Family Office works to plan an intergenerational wealth transfer, they focus on one key outcome as their metric for success: family unity.

Richter specializes in business owners. These are high net worth and ultra high net worth individuals who have built successful businesses and significant personal wealth. They have complex structures around their assets and complex goals for, and within, their families. Many of these families are also in the midst of the greatest wealth transfer in human history, as the baby boomer generation begins to pass their assets on to their heirs.

Tasso Lagios, Managing Partner at Richter, explained how his firm is managing this transition for their clients, what lessons advisors can take from their approach, and why his firm prioritizes family unity and lets other considerations flow from there.

 “If the family falls apart, then all the tax efficiency in the world is not worth what the founder built on behalf of them or their family,” Lagios says. “Fundamentally, family unity means a strong send of collective and individual self worth, with a business or financial legacy that provides opportunity and comfort for generations to come,”

Lagios is himself a CPA, and notes the importance of the tax side within that goal, but emphasizes that emotional sacrifices made for marginal financial gains may not be worth their cost to the family.

Because Richter specializes in business owners, much of their work revolves around how the business will be passed on. That could be in the form of a direct inheritance to the next generation, with the founders’ children taking the reins. It could be in the form of a sale of the business, passing the proceeds on to the next generation. Or, it could be the appointment of stewards to run the business while ownership is kept in the family.

Lagios tells the story of one family where the founders’ children and grandchildren did not want to take over the business. Rather than sell it, they put management in the hands of employees while retaining ownership. At the same time, a great-grandchild expressed interest in the business and has been given an opportunity to learn and grow in the company, with the hope they would one day take over management.

Arriving at those decisions began years ago. Richter’s approach begins as their clients are growing and building their businesses. They work to understand both the financial and emotional meaning those businesses have for their clients. Lagios notes that this understanding is not static and requires regular check-ins about how their clients and client families view their businesses.

In planning for an intergenerational wealth transfer, Richter specializes in educating the next generation, building financial literacy skills that can help a founder’s children and grandchildren understand fully what they will inherit.

While he notes that financial advisors might not have the full suite of offerings a family office does, the crucial role a wealth manager plays can make them ideally placed to deliver a similar service to their clients. Financial literacy education, for example, can help an advisor prepare their clients’ families for a wealth transfer.

Lagios believes that a financial advisor can position themselves as a quarterback, bringing their clients’ needs to various professionals able to deliver quality service. Developing a network of other professionals: accountants, lawyers, and insurance professionals can be key to that work.

Advisors with business owner clients may also want to develop a knowledge of governance structures. Lagios notes that Richter’s ability to set up and tweak governance plans can set them apart. Since governance is so key to any transition for a business, advisors with an understanding of business governance can contribute far greater value for their clients.

More than anything else, though, it’s key to understand that a wealth transfer means more than just optimizing the transfer of some assets. Lagios believes a complete picture of a client’s life is necessary.

“For ultra high net worth families, it's understanding that it's not just about tax efficiency, or proper structure, or having a proper will, which is typically a lot of the default that many will go to,” Lagios says. “Understand that there's an emotional element to this, that goes beyond just the financial piece. Advisors should seek out partners and those who have had more experience in this and partner up with them so that they can help their clients in a highly sophisticated way.”