A Beginner's Guide to Family Succession Planning
Updated: May 9, 2022
It’s never too early to start succession planning, especially if you’re the head of a family and want everyone to continue living a comfortable life.
Succession planning is a lengthy and sensitive transition process that touches upon so many aspects, including family dynamics, wealth management, and legacy planning. It can help preserve wealth and family heritage over several generations.
After working hard to build a successful life for you and your loved ones, you’d want them to be able to still enjoy everything even after you pass.
So in this article, we’ll discuss everything you need to know about family succession planning.
How does family succession planning help?
Thinking about our own passing can be scary for some people, but it’s the nature of life and something everyone goes through. While we can’t control our fate and death, we can however control what happens to our wealth and how it’s distributed to our families.
Through good succession planning, you’re helping create peace and stability in the family by leaving your loved ones and the next generation with financial security.
What happens if you don’t make a family succession plan?
It’s believed that family wealth is created and lost within 3 generations. Without succession planning, wealthy families may lose their fortune by the second generation, or by the third generation if you’re lucky enough.
Your financial assets will be passed on either way, whether you take action now or not. The only difference is that, without succession planning, you will have no control over how that happens.
Even with a will, you don’t know how the person you’re entrusting everything with will distribute it to your loved ones.
What to consider in family succession planning?
When creating a succession plan, you should consider your family members, their location, financial standing, and goals in life.
Personality plays a crucial part in family wealth management, so make sure you’re designating someone who knows the value of a dollar and hard work as your successor or will executor.
Your current lifestyle and how you intend to live in the future also play an important role in succession planning.
First, you need to be sure that you have enough remaining wealth to sustain your lifestyle for a few more years.
Only then when you’re certain that you may be able to pass on the excess to your loved ones and the next generation.
Source of wealth
If you’re part of the generation that created your family’s wealth, then your source of wealth may still be existing. For most families, their source of wealth is the family business.
In that case, a strong exit strategy as the head of the family business must be prepared ahead of time to guarantee you’re leaving everything in capable hands.
What are the first steps in succession planning?
It’s important to talk to your children early about the responsibilities they may take on as they get older, such as joining the family business or earning money for themselves.
Children should be aware of what you expect from them and what they can expect from you. Try to have discussions about why you set up the finances that way you did so they understand the process.
Dodging conversations about money, even general ones, will make it harder to teach children the importance of earning money and preparing for the future.
Having discussions on family wealth is your best chance to inculcate your values to your children and encourage them to always strive harder in life. It will teach them how your wealth was created, who you are as a family and what your family stands for.
Don’t forget the in-laws
Some families tend to keep the family wealth within the immediate bloodline, but the more grandchildren who can continue the legacy, the better.
First, try to talk to your in-laws to get a gauge of their background and values. If they sync well with yours, then you can enlist their help to teach your grandchildren about family wealth and the importance of business.
At the end of the day, in-laws are still part of the family, and having more people on your side you can depend on will be advantageous in the future.
There’s no need to invite them to every family business meeting, but have the courtesy to invite them to some general family meetings.
Discussing your wishes early on will avoid surprises and confusion when the time comes when your will is being read. It also helps keep the family together and unified even after you are gone.
For example, if you have the intention of your oldest daughter taking over the business and handling the family wealth, this should be clearly discussed in family meetings.
We’ve seen many families drift apart over disagreements that could’ve been discussed ahead of time while the head of the family is still around.
Keeping the family legacy alive
Succession planning is one of the most effective financial tools to maintain your family legacy and leave a secure future for your loved ones.
It doesn’t come easy, though. Apart from the multiple considerations, you have to start as early as possible to educate your children about the value of taking care of your family’s wealth.
If you want to talk to an expert about succession, or simply want advice on wealth management or legacy planning don’t hesitate to send us a message! We can connect you with experienced financial advisors who can help you reach your goals.