Succession lessons: the drama-free way to hand on family wealth

This article was first published by Integro Private Wealth.

As has been much-reported, over the next 20-30 years Australia will see the biggest intergenerational wealth transfer in its history with some $3.5 trillion worth of assets set to change hands.

According to a 2017 report from consultancy firm McCrindle, the generation of Australians aged over 60 at the time had produced over 7.5 million children.

“... and if 70% of their current total wealth (3.5 trillion) is passed on, each child would receive as much as $326,000 in wealth transferred,” the study says.

But while these statistics paint a broad picture of the inevitable wealth transfer trend, the average figures obscure the details.

In practice, handing on wealth between generations will vary considerably based on the size and complexity of family assets as well as more subtle relationship factors.

For wealthier families, particularly, the task of juggling complicated technical intergenerational transfer issues – such as tax and investment strategy – with multiple individual agendas can be daunting.

Current hit TV show, ‘Succession’, for example, highlights the chaotic impact of generational conflict as family members battle over assets and business strategies.

Of course, few Australian families have the extreme wealth and power accrued by the fictional Roy clan in ‘Succession’ but many have built up significant assets that require careful planning to ensure a smooth transfer to upcoming generations.

However, while many wealthy family groups are aware of the need to develop a consistent, well thought-out approach to managing the looming asset-ownership transition, not all are following through.

A global study published this year by consultancy firm BDO backed up “conventional wisdom by showing that succession planning is a top three priority for wealth owners for the coming 12 months, but in spite of this it can still fall down”.

“Family dynamics play a crucial role, and disputes can arise from anywhere – but more often than not, from a failure to communicate and manage expectations,” the BDO report says.

“People don’t plan to fail, but they fail to plan.”

In an analysis spanning 20 years, US family wealth research specialist firm, The Williams Group, found about 70 per cent of families failed to successfully hand over assets to the next generation due to three common errors:

  • poor communication
  • lack of preparation among beneficiaries to manage inherited wealth and,
  • no overarching explicit purpose for the family wealth over time.

As the $3.5 trillion Australian wealth transfer effect moves from theory to reality, many families will need holistic advice from multi-disciplinary professional advisers such as BDO Private Wealth to manage the process.

Succession does not have to be like ‘Succession’.

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