How do you manage family wealth transfers?

Five key pointers to help your family successfully pass on its hard-won wealth

How do you manage family wealth transfers?

There’s an old Chinese proverb that wealth doesn’t survive three generations because the first generation makes it, the second generation spends it, and the third is left with nothing. With one of the biggest wealth transfers happening as the baby boom generation ages, how do you ensure that doesn’t happen to your family?

Here are five keys to your family can continue to enjoy the wealth that’s been accumulated. 

  • Manage your family wealth planning like you would a business: You can draw in your financial advisor to ensure that your family works together, like it would as if it was a business team, and discuss your plan for doing the intergenerational wealth transfer. You will need to discuss your goals – perhaps by defining your family mission, vision, and values – and the reasons for transferring the wealth, but also the family dynamics and what aids, or detracts, from meeting your goals. What issues need to be resolved? Who needs to take what roles to manage the dynamics and meet the goals? You need to work together to create a solution that works for the whole family in order to ensure the plan succeeds.
  • Provide your family with financial literacy: It’s important to ensure that the whole family has a full understanding of how the wealth was generated, what it was meant to accomplish, and what the family considers its financial legacy to be as well as what vehicles the money is located in and how those should be managed. That means that you need to get everyone involved to understand all of the ins and outs of managing that money as the founders or family now would want it managed. Here’s where your financial advisor can also help as your family may need to learn about investments, real estate, and risk management, as well as how the portfolio is positioned and the risks or advantage that may be in it. That could include understanding stocks, private equity, or hedging. The more information that you can impart to your family, the more chance it will have to understand what the money does and how it needs to be managed as the transfer occurs to ensure that it’s safe. So, start early and give yourself lots of runway to do that positioning to ensure the inter-generational success.
  • Figure out if it’s time to start a family office: If your family has accumulated a significant amount of wealth, you may be wondering if it’s time to start a family office. There are more than 10,000 of them globally – groups such as the Bill and Melinda Gates Cascade Investment, though most are much smaller and may have only one or two people who manage the family’s assets and protect its wealth. Some families will form a multi-family office or outsource the job, with a financial advisor handling the investment portfolio,  an attorney handling the estate plan, and a chartered professional accountant handling the tax strategies. There are many different ways to approach this idea, so ask your advisor to assist you to define which one would work best for you and your family.
  • Promote family harmony: Take time to really get to know your family and what’s important to all of those who will be getting involved in the transfer so that you can come up with a plan that works for everyone. It’s not uncommon to have family conflict when one generation spells everything out for another because values change over time. In order for this to be a smooth, as well as successful, transition, the planning needs to take everyone’s needs into concern. The better you know your family and the more you can open communication with everyone, the more chance that whatever plan you can collectively spell out will have to succeed as the money transfers to the next generation.
  • Let the next generation have the opportunity to take risks: Values change with each generation. So, while a family may decide what it wants its financial legacy to be, one generation needs to allow the next to take that legacy to its next stage. Families often make their money by taking risks and being disciplined, but what that means can differ with each successive generation, especially as the tools and realities change with the times. It’s great if each generation can support the kind of endeavours that promote that spirit of entrepreneurship, even as it continues to evolve.