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How To Succeed In Family Offices
If you want to avoid problems with succession , it ’ s best to close the generation gap .
Hannah Shaw Grove & Russ Alan Prince
SUCCESSION IS A CRITICAL PRIORITY FOR FAMily offices . But the transfer of power is complicated by numerous factors , including power dynamics and the emotions that come into play when family members deal with one another . Without succession plans , however , conflicts arise that can hinder the effective functioning of these entities .
We recently conducted research with single-family offices and their private counsel and learned that the founding and inheriting generations often have different views about how to run them and what the priorities should be in the future . That , in turn , makes it difficult to construct and execute plans to ensure the continuation of a family ’ s legacy , wealth and values .
Here we ’ re passing on our key findings and observations that can help these entities ( as well as other types of family enterprises , including family-owned and operated businesses ) navigate the transfer of power .
Succession Plans
Single-family offices are typically created so families can preserve and build their wealth for future generations while also retaining control of that wealth . It ’ s not surprising that these entities are more likely to focus on the financial aspects of succession planning ( as opposed to the operating plans ). On average , 80 % of single-family offices have a financial succession plan , though it ’ s worth noting that 88 % of the offices with plans are still under the control of the founders , while only 67 % of those offices under the control of the inheritors have plans in place . Again , conflicts arise when there are no succession plans , but the same can be true if the financial plans are outdated and no longer reflect the family ’ s composition or objectives .
Operational succession plans are a different story . On average , only 29 % of single-family offices have such plans in place , while founders are much more likely to have one than inheritors ( 42 % of founders , as opposed to 8 % of inheritors ). Such operational plans are crucial if inheritors want to take over an organization with minimum disruption , but most inheritors need additional experience and advance planning to do so seamlessly .
Multigenerational Planning Rationale Some founders have plans for their family offices that span multiple generations — including not just children but grandchildren . Some 58 % of the offices have multigenerational plans that are often coordinated and drafted in conjunction with estate planning . Interestingly , inheritors are more likely to use these multigenerational plans than founders — 71 % of inheritors compared with 52 % of founders . Private client attorneys say families lean toward the multigenerational approach for two primary reasons : 82 % say it helps ensure family control and 70 % cite the ability to pass on wealth and assets more tax efficiently .
44 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM