Embarking on the journey of succession planning marks a significant step towards ensuring a secure and prosperous future for yourself and your loved ones. The questions of how and when to pass the torch to the next generation loom large over many families. Effective succession planning helps provide a solution.
Conflicts over the management of assets, the distribution of wealth, and the preservation of a legacy can create deep-seated rifts in the absence of formal agreements and effective communication, which can result in financial loss and reputational damage. To avoid or mitigate this risk, many families engage in succession planning. Planning for your succession is all about determining how and when to transfer ownership of your assets, income, wisdom, and values to future generations.
It has to do with expectations management, communication, and taking asset holding structures into account. Giving your money to your kids is not succession planning because there isn't any actual "planning" involved. You will need to lay out a procedure and timeline that may take several decades if you want your children to inherit your company or assets. In cases where philanthropy is a primary goal, it's critical to control your children's expectations as they may otherwise assume they will inherit your entire estate. No one likes surprises!
It can be difficult for more senior High Net Worth individuals, particularly those who are self-made, to accept that their time in control will one day come to an end.
The problem is that when you’ve got significant wealth, particularly if you’ve made it as opposed to inherited it, you have a proprietorship over that wealth. Entrepreneurs may be tempted to put off beginning the process until they feel as though they have "made it" or are ready to take it easier. Unfortunately, entrepreneurs seldom ever "get there" or slow down, as a result, they rarely invest enough time and resources to develop a successful succession plan. Families with wealth that has been passed down through multiple generations typically understand the value of family governance and succession planning, and they always keep the idea of transition in mind.
Every family is unique, and it is important to reflect on the dynamics of your family and relationships and then tailoring your succession plan to address unique needs and potential challenges.
Part of the process is taking time to consider what legacy means to you individually and as a family, and what you have learnt that you would like to pass on.
The succeeding generation may view topics like philanthropy, entrepreneurship and climate change differently. We must remember that maintaining and evolving legacy is not necessarily about exerting control and more about creating a framework for heirs to operate within.
Embarking on the journey of succession planning is an empowering step towards new beginnings. It allows you to shape your legacy, provide for your loved ones, and ensure that your values endure. By taking the time to carefully plan and periodically review your estate, you pave the way for a secure and promising future for generations to come.