Trust Estate
COVID-19, Great Transfer And Bridging Generational Gap

Whilst succession planning has long been on the HNW agenda, never before has so much value been at risk from poor planning. The pandemic, and the disruptions associated with it, makes preparation particularly important when so much can go wrong.
The greatest wealth transfer in history is taking place, with £5 trillion ($6.61 trillion) expected to pass from Baby Boomers to younger generations over the next few years, according to different studies. Now, with the global pandemic bringing succession planning into an even sharper focus for many, how can high net worth families bridge the generational gap to convert potential crisis into opportunity?
The following article comes from Maitland, the global advisory
and administration firm. Its international reach gives the firm a
good vantage point for the the issue. The author is Iris Harvey,
executive director, Private Client Services at Maitland. This is
clearly a major topic and the editors are pleased to share these
views. The usual disclaimers apply to views of outside
contributors. Jump into the debate! Email the editors at tom.burroughes@wealthbriefing.com
and jackie.bennion@clearviewpublishing.com
It is difficult for anyone to have missed the headlines
anticipating a huge transfer of weatlh in recent years. The
numbers are staggering. Last year, research by Brooks Macdonald
found that more than £300 billion is due to be passed on from
Baby Boomers to around 300,000 heirs over the next decade
alone.
Whilst succession planning has long been on the HNW agenda, never
before has so much value been at risk from poor planning. This,
together with the harsh reality of a global pandemic, is spurring
matriarchs and patriarchs of high net worth families into action
to get their affairs in order.
Whether it be reinforcing existing structures or putting new ones
in place, effective succession planning typically involves
engaging with younger generations to prepare them for the wealth
transition. Fifteen years ago, private banks and family offices
tended to do business solely with the head of the family, and
when the torch was passed, it was usually to a single family
member. Fast forward to the present day and family wealth is
becoming increasingly intertwined with the lives of all of its
members.
Knowing when to bring younger generations into conversations
about family wealth is tricky and specific to each family. Some
may choose to give their children an account or assets to look
after when they come of age to help them decide if they want to
be in the driving seat of that wealth in years to come. For
others, having business conversations around the dinner table
from a much earlier age is the preferred method.
From cultural influences to varying outlooks on life,
generational differences can also be a concern when it comes to
the transferral of wealth. According to recent research from
Barclays Private Bank, two thirds of older high net worth
individuals are concerned about the transition of wealth to
younger generations.
The best solution to mitigating these concerns is recognising
that there is no best way to prepare the next generation, but
rather focusing on what works for each family within a broad
framework that deals with the key succession planning parameters.
For those matriarchs and patriarchs who are ready to bring
younger generations into the fold, with the right tools in place,
they have a unique opportunity to bring family members together
in what is an uncertain time for us all.
So how can families successfully transition wealth to the next
generation in today’s environment?
The family constitution - why every HNW family should
have one
Establishing strong family governance is key. But this doesn’t
have to be solely via legal entities. In fact, the family
constitution can be as formal or informal as each family would
like it to be.
Imagine a senior family member suddenly passes or is no longer
able to gather family members around the proverbial table. What
happens to the inheritance? Does the family keep it centrally or
divide and conquer? If a younger family member wants to set up
their own business, what portion of the pot can be invested into
such endeavours versus held back for future generations?
More than a guidebook on how to protect family wealth, family
constitutions are the glue that hold HNW families together,
acting to preserve family values and aid future generations with
key decisions, based on a shared vision. Creating a family
constitution can act as a unifying process as family members have
clear, honest and transparent conversations with one another
about their ambitions and frustrations.
Communication is king
Parents and children tend not to communicate very well at the
best of times. When it comes to educating younger generations
about wealth, finding a way to tell the family story cannot be
overstated; it can influence the messages given to younger
generations from an early stage and help to motivate the
next.
With a rising generation of tech-savvy Millennials due to inherit
a portion of the great wealth transfer and more likely to engage
via more modern methods of communication, families are
considering alternative strategies when it comes to communication
within the family. This could take shape as a video exploring how
the family’s wealth has been built, its history and its
ancestors, to put a human touch behind the numbers and instil a
sense of family legacy in its younger members through a medium
that can persist well into the future.
Having the right people around you is crucial, especially
in a crisis
Every family is different, and each will be facing their own set
of concerns in respect of the next generational wealth transfer.
What is most important is that there is a plan to preserve what
is most important to the family, and that this is communicated
appropriately. For families without a plan, there has never been
a better time than now to start getting one in place.