Statistics show that within the next year, the “great wealth transfer” will be underway. An estimated $1 trillion is expected to move from baby boomers to their beneficiaries. While this is an exciting time for economic change and development, the great wealth transfer leaves many individuals feeling wary if assets will be able to sustain a new generation of ownership.
When it comes to generational assets and wealth transfers, it is common for conflict to arise from diverse family dynamics and differences in intention. In fact, studies show that only 30 per cent of intergenerational wealth transfers succeed, with 95 per cent of the failed ones attributed to a lack of communication within families or inadequately prepared beneficiaries.
Hard-earned familial wealth deserves to be sustained and utilized for years to come, but how do we ensure that generational asset transfer is executed effectively? What sets successful wealth transfers apart from the failed ones comes down to one important factor– succession planning.
Rule of Thumb: Start Early
Like most things wealth-related, starting succession plans early makes the possibility of continued wealth prosperity highly more likely. Whether you are transferring a family business to the next generation or simply allocating wealth, a common rule of thumb is that you need at least ten years to plan for a successful succession.
While a decade-long execution plan may seem excessive, minimizing the threat of losing generational wealth involves a significant amount of preparation. From tax considerations to estate planning and ownership, the multitude of agreements and contemplations requires a substantial amount of communication between wealth owners and family members; By allocating focus on inter-family communication, wealth transitions can be made a lot easier.
Co-operative Communication
Sitting down with beneficiaries to discuss long-term goals is a great way to initiate meaningful conversations with a cooperative approach. When long-term objectives are made collaboratively within the family, the nature of succession planning is done with a team-based outlook, minimizing the risk of conflict.
Consistent reevaluation of goals will make any unforeseeable changes and differences come into the light, allowing family members to be held accountable for mutually agreed-upon objectives while providing space for their voices to be heard.
This is a great opportunity for wealth owners to learn about the intentions and capabilities of beneficiaries allowing them to gain a good understanding of what roles can be most effectively designated.
Keeping the Business in the Family
Succession planning is as much of a communicative, personal endeavour as it is a financial one. With 60 per cent of small business owners aged 50 or over, a quarter of these owners will sell or transfer through a family succession plan.
With the changing economic landscape and recent capital gains inclusion rate increases, financial planning tactics are becoming increasingly important when it comes to succession planning.
Selling your family business at a fair market value not only informs the next generation of the true worth of the business but also provides ample funding for retirement. Giving your succession plan a significant time horizon will also make the selling process financially manageable for beneficiaries.
Working with a wealth professional will not only balance family dynamics, it will financially secure assets with strategies and tactics for the future. Begin your family succession planning with the RaeLipskie team and unlock the next generation of your wealth.
