Francis Menassa, JAR Capital: How succession planning can help families preserve wealth for the future

Roughly £5.5 trillion is due to be passed between generations over the next 30 years in the UK according to the Kings Court Trust, however, a recent study found that only half of all ultra high-net-worth (UHNW) individuals have a robust succession plan in place.

This is concerning because it takes time to devise a comprehensive strategy to transfer wealth, and decision-making responsibilities, to the next generation. There can be numerous obstacles to overcome. The head of the family may not be ready to hand over responsibilities. Beneficiaries may not be prepared to accept responsibility. In addition, evolving family structures and a wide span of generations present challenges of their own.

Ultimately, when it comes to intergenerational wealth transfer, planning in advance is important. With that in mind, here are three things that wealthy families can do to prepare for a successful transition.

Establish clear objectives

The first step in the succession planning process is to establish clear objectives and define how future generations should benefit from an inheritance. Identify who should benefit and in what proportions.

Bear in mind that sometimes the interests of the head of the family will not align with those of the children or grandchildren. For example, while the older generation may be comfortable investing in industries such as oil & gas or tobacco, the younger generation may prefer to invest on a sustainable basis. Additionally, there may be a wide disparity in risk tolerance among beneficiaries. There are also like to be a number of personal factors to consider; everyone will have different personal views and requirements.

Philanthropy is also important to consider. Is there a philanthropic purpose for your wealth, and does it align with your family’s values? Some families may wish to maintain consistency in their philanthropic ventures, while others may prefer to create a lasting legacy.

Take an integrated approach

To ensure a smooth transition, it is important to create the right governance structures and identify corporate trustees and lawyers that will help you achieve your wealth transfer goals.

Adopting an integrated approach is a key to the successful transfer of wealth. Speak with relevant experts to determine what types of financial structures should be established. Trusts, foundations, and private companies can all play a role.

Those with family located internationally will also need to understand the implications of transferring wealth overseas. For example, those in the US will need to take the Foreign Account Tax Compliance Act (FATCA) into account.

Focus on the people

Finally, while the focus of wealth transfer is on the preservation of assets, it should also be about the people involved. It’s imperative that the succession structure suits the individuals within the family.

For example, some members of the family may have little knowledge of finance so they may need financial education before the transition. By contrast, more competent individuals may desire more flexibility in order to leverage their expertise.

Naturally, communication is important as a lack of communication can seriously impede the process. Indeed, a recent study by Moore Stephens found that nearly a quarter of those dealing with succession plans experienced difficulties when trying to reach agreements in the decision-making process. It’s vital that the succession planning process includes open dialogue with key beneficiaries right from the start of the process.

At JAR Capital, I advise clients to include their beneficiaries gradually. Start slowly, and over time, give beneficiaries more responsibility. Initially, it might just be an exercise in sharing information, however, as beneficiaries develop interest, they can play a more active role.

There is no doubt that intergenerational wealth transfer has its challenges. The key, therefore, is to plan in advance. By putting a plan in place early, families will be more likely to experience an orderly and harmonious succession of assets, and this will help preserve their wealth for future generations.