Family Wealth and Succession Planning

By Eric L. Weiner, MSW, Ph.D.

A Succession Story

For years John Smith had worked hard in the warehouse business. This is a family business that was started years ago by his father and uncle. Now, as he is contemplating his retirement, he has called his trusted financial advisor to discuss succession issues and overall estate planning strategies. For John this was a “no-brainer;” he saw no reason to include his family in these matters. His wife rarely showed an interest in financial matters and was quite preoccupied with her volunteer activities. Although they never discussed it, he knew his oldest son, Tom, would naturally want to step in and take over the business. After all, Tom had been involved in the business for the 15 years. John knew he couldn’t count on his youngest son, the poet, and part-time English instructor. What would he know about running a business? His daughter, even with an MBA, had never shown a strong interest. Tom must be the one to take over the reins.

Little did John know, however, that Tom had only a minor interest in the business. In fact, he worked there just to appease his father and really resented his father’s attempts to “rope him further into the business.” Meanwhile, his daughter had gone to graduate school with the intention of someday taking over the family business.

Something is Missing

Many “soft issues” dot the succession planning landscape but there is often one dynamic common to the process: direct communication between family members is lacking or nonexistent. When assumptions and decisions are made without direct input from others, the consequences often have serious implications for current and future generations. When not addressed, these “soft” issues can disrupt, block and damage the harmony of family relationships.

What can be done?

John can think differently about the process. Why not include the whole family in the planning process and address the four types of capital? In what ways can the passions of each family member be satisfied (human capital)? From the son who wants to teach English or his wife and her interests in volunteerism, finding ways to feed their “callings” sends an important message. The values, dreams and passions of all family members play an integral part in a wealth preservation strategy.

How do conflicts get effectively resolved in this family? Some sort of family governance structure (intellectual capital) can be critical to resolving conflicts, listening to the needs and interests of others, and vital decision-making. Quarterly family meetings and even a family retreat in a vacation destination are used by many to address the business issues and have some family fun.

Social capital involves the connection to the larger community. It is the causes that one invest in that go beyond the immediate family. Perhaps there is a philanthropic cause consistent with the values held dear by John’s family worth exploring. Perhaps his wife has specific ideas about philanthropy consistent with her values as a volunteer in the community.

From the perspective of financial capital the question for John is how does he “grow” responsible heirs and successors? How are children prepared to assume the responsibilities involved in understanding management and finance? His daughter certainly has the academic training; now she may need some practical experience to groom her to become a responsible leader.

A Recipe for Success

The most effective tax, legal, and general financial plans also involve soft strategies. Think about integrating of all four types of capital for a successful succession plan. You might also consider adding a family legacy advisor to your resource team to facilitate this process. Integrating these ideas can make an enormous difference that culminates in a positive outcome for your business and your family.

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Published in “Beyond the Numbers: Bridging the Gap between Money and Emotions,” (e-newsletter), March, 2007.