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 to how and when to pass on wealth, control and knowledge to the next generation. Head of Private Wealth, Hayden Bailey shared his experience and expertise in Spears.

‘Succession planning is about deciding how and when you will pass on responsibility, wealth, knowledge, and values to others. It is about communication, managing expectations and considering asset holding structures – succession planning is not giving your money to your children, as there is no real “planning” involved in that. If you intend to your children to succeed to your business or assets you will need to plan out a process and timeline, which might cover several decades. Where philanthropy is a key objective it is imperative to manage the expectations of your children, who might otherwise naturally expect to inherit your estate in full.’

'Sharing knowledge and responsibility over a lifetime can be very rewarding and avoids you becoming a “single point of failure” as sole controller and repository of knowledge,' he explains. ‘Through planning you can establish enduring family values and collectively agree ways to approach challenges as a family. A solid succession plan can also provide protection against improvident behaviour of future generations and some protection on divorce.’

Bailey notes there can be a temptation for entrepreneurs to hold off starting the process until they feel like they have 'made it' or want to slow down. 'Unfortunately, entrepreneurs rarely ever “get there” or slow down, and therefore fail to devote sufficient time and resource to creating an effective succession plan,' he notes. ‘Families with multi-generational inherited wealth tend to have a greater appreciation of the importance of succession planning and family governance and always keep the concept of transition in mind.’

'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 to create a framework for heirs to operate within.’

‘If mitigation of taxes becomes the main driver the plan risks failing to define legacy and how and when wealth is to be used. Tax mitigation was more of a driver in the 80s and 90s and some inheritors of those older structures can find themselves saddled with complicated and bureaucratic arrangements that lack a defined purpose and can be expensive to unwind.’

‘Succession should not be treated as a one off event - it is continuous and needs active engagement across the family.’

'As with most things, a failure to plan is planning to fail. Family members can fall out and wealth and businesses can be lost if expectations are not managed and there is no agreed process for how certain situations are to be approached as a family. A cliff-edge situation is created, and the next generation have not been equipped with the knowledge or experience to manage family wealth or business interests and can be taken advantage of.'

The full article was published in Spears in October 2023 and can be accessed here. 

Interested in hearing more?  'Lessons in Legacy’ initiative explores the meaning of legacy and the value of developing family governance frameworks to ensure successful generational transitions. Our reports and podcasts on this topic can be found here.