Transferring Family Wealth: What’s Your Plan?

Transferring Family Wealth: What’s Your Plan?

We all have a lot on our plates so it’s easy to understand why you might think you can quickly cobble together a succession plan when the time comes. And if you’ve only recently acquired wealth, say through a successful exit, you may be so busy planning your next venture or acclimating to your new state, that the concept is not top of mind.

But it should be!

Advance planning is critical because it allows you to protect your assets, ensure continuity and preserve wealth across generations: not to mention transfer wealth in a tax efficient manner. All of this means more peace of mind for you and reduced risk to your heirs. Without a plan, what happens to your family wealth could be up to the courts to decide. And let’s face it, if most of your newfound wealth is in stock, especially if it’s restricted or tied to earnouts, you need to address your downside risk.

So what is a succession plan? What are the essentials? And who needs one?

A succession plan is simply a plan to transfer business ownership and assets. It is inextricably linked to your estate plan which focuses on your total wealth. If you own a business, have amassed wealth or inherited it, you need a plan. It will save you time, money, and hassle plus minimize the chance of painful family battles down the road.

Some key points to keep in mind:

Your estate plan should include plans for the disposition or transfer of your business ownership (including designated successor(s) and/or any buy-sell agreements) along with your will, and other important legal documents such as powers-of-attorney, advanced medical directives, designated health care proxy, and trusts (if you have these set up). These days, you’ll want to include provisions for the handling of your digital assets too. Your philanthropic strategy also comes into play: whether it’s naming recipients, placing restrictions on how your donations may be used, and/or the vehicles/structure through which you’ll give.

Once you have a plan in place, communication is key. While you might not be ready to share all the details with those nearest and dearest to you, at the very least you should fill in anyone who will be directly impacted by it. Leaning on a trusted advisor to help with your communication strategy can remove some of the emotions from the process. Proactive communication will also help clear up any unstated assumptions, minimize the potential for misunderstandings, and help you get buy-in. It should also bring any unanticipated issues to light while you have the opportunity to plan for their resolution.

No plan is complete without documentation. This should include an outline of your decision-making framework and goals with all of the supporting details. Your financial plan and personal net worth statement are backbones here. Include all valuations of personal and business assets (including any buy-sell agreements), ownership and title papers, and insurance (make sure policies are up to date with named beneficiaries, inventories, and asset values).

The African proverb “it takes a village” could also describe the process of pulling your succession plan together! Preparation takes concerted effort from a team of experts including attorneys, your financial and insurance providers, and your accountant. And implementing your plan is likely to involve a transition period — whether for you to groom a successor, transfer some assets, explore options for managing your business, or get sign-offs from business partners, spouses, and/or other parties. Finally, don’t forget to periodically review your plan. It’s a living document and you should revise it as your circumstances change.

Transferring family wealth to the next generation can seem daunting but it doesn’t have to be. Break it down into manageable steps, then allow yourself enough time to put it into place. Doing some work upfront is a lot better than having your hard-earned wealth disappear within a generation.

Want to get started with succession planning? Tell us about it in the comments section below or contact Early Growth Financial Services for help preparing a personal net worth statement.

David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.

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