Succession and wealth transition plan: "I don’t need to worry about that yet…”

Jonathan Needham, Head of Trust and Succession Planning for Société Générale Private Banking, shares his succession planning tips to better plan for the future.

Having been in the private client wealth management industry for nearly 40 years I have heard this phrase so many times and each time has it proved to be plain wrong. You go on holiday, you plan. Your children’s education, you plan. You move house, you plan. You get married, you plan.  So why is it unreasonable to suggest that one should plan the succession and transition of your family wealth?  The simple answer is that the transition of family wealth absolutely needs to be planned. One of the major consequences of the recent pandemic has been to reinforce awareness of our own mortality. However, it has not yet had the effect of ensuring that families plan better for the unexpected (or indeed plan at all). If you do not plan you have little or no influence over the outcome. Using a simple analogy every time we sit behind the wheel of a car we put on a seat belt, make sure the car is fuelled and have a clear idea of the route to our end destination and an idea of any hazards in our path. In other words, we simultaneously plan and mitigate risk as far as is reasonably possible. Simply put, we plan for the unexpected in the hope it will never happen but we can then deal with it, if it does. For nearly four decades I have seen families destroy (or at least seriously dilute) family wealth, allow dysfunction to occur within family lines and in some cases seen the structure of the family completely and irreparably breakdown. The causes of this are frequently known in advance and the warning signs missed. Add to this the complexity of human emotion and 21st century life with blended families, same sex marriages, civil partnerships, cross-border taxation and divorce rates at all-time highs, then the level of complexity has exponentially increased. In one piece of research[1] I picked up recently, 84% clients regard their wealth transfer planning as being equally or more complex than two years ago. 50% of clients feel they would benefit from more advice in this area and significantly, 28% of clients believe their advisor has not engaged adequately with the next generation and broader family in these significant discussions. This will be tremendous news for the many dispute resolution partners in law firms across the globe, but these are simple things to solve (no disrespect to the partners!) and investing time in developing a well thought plan is time well spent and may help you avoid many of the pitfalls.

[1] EY Global Wealth Management Research Report 2023

So, what are the critical elements of ensuring a successful wealth transition?

1. Start your planning early. Having something is always better than nothing and if done correctly can always be adapted to circumstances along the way. A living plan that can adapt to threats and lifestyle changes. Remember that wealth, acknowledging that it is not simply a factor of size, is relative to every family and scale is simply another factor to be considered.

2. Define your vision for your wealth and communicate it to your family. Set your bar and expectations and equally ensure that their moral compasses are pointing in the same direction as yours? For younger family members, educate them about wealth and what it means (good and bad). Wealth creates different vulnerabilities (particularly significant wealth) and these need to be understood and then mitigated.

3. Be fair (not to be confused with equality) and do not allow personal prejudice to drive your planning and more importantly be transparent with current family members of your intentions. Transparency is the nemesis of distrust and believe me, it is important for all family members to trust in your plan and the processes and thinking behind it.

4. Remember that families leave two legacies. A financial one and a societal one. Both need to be addressed during the planning process. A clear view of the societal legacy, be it in the form of philanthropy or charitable giving, can have an enormous impact at the level of individual family members. Discussing this at a family level and having a clear understanding of your intended or real social impact is immensely powerful in building family unity and shared values and purpose. If correctly considered, this can create an environment of trust amongst family members, which can then simply translate into the financial legacy discussion. It builds trust and alignment.

5. Do not delay the discussion. From experience, most family distrust and dysfunction occur as the result of the unexpected or untimely incapacity or passing of the wealth founder. This occurs before they have had the opportunity to develop their plan and more importantly communicate their wishes, expectations and aims to family members. The void created creates fertile ground for negative emotions and distrust to flourish; so start early.

6. Take advice. Learn from the experience of others who will have the ability to guide you as to what works well and what doesn’t. Advisers are also adept at supporting sensitive discussions and help depersonalise some of the more difficult conversations.

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