Inheritances and gifts have more than doubled since 2002 and could rise four-fold in real terms between now and 2050. That’s an estimated $3.5 trillion dollars changing hands in the next 27 years!
This transfer of wealth will have wide reaching implications for those inheriting the wealth, the people leaving it behind, and their businesses. It will also have a profound impact on the future of the Australian economy more broadly.
The great wealth transfer may sound like a windfall, and it is for many, but it is also carries the burden of responsibility. The incoming generation will have a responsibility to their family, the businesses they control and those that rely on them to use it wisely.
This could mean they feel an obligation to carry on a family business, even it is not what they enjoy doing, and the responsibility to not squander the wealth that has been given to them.
So, how can the next generation set themselves up for success?
Discover your legacy
The first thing that you should contemplate is the legacy you want to leave behind. Get clear on what you want for your business, for your family and for yourself. How do you want to be remembered? What is important to you? Should your succession plan be implemented while you are still here? What do you want for your children? What do you want for your business and all of those that it supports? How will your estate be split?
Set up a structure that can stand the test of time
Structure your affairs appropriately. If it is not structured correctly, it can lead to family conflict, result in excessive taxes being paid, and could even threaten the long-term viability of your business and your family wealth.
This step is not always straight-forward, so you will need the right advisers and governance structure in place to support you.
Communicate and document everything
Communication should be at the heart of your planning process. Whatever the vision that you have for your business and your family, it’s important to know and understand if this vision is shared with your successors and the family.
Often times conflict arises from a lack of communication and misunderstanding. Talk to your successors often and make a point of including them in the process. Does your family know what your wishes are? Does your family know what the plan is for your succession? Do you speak with your successors regularly about these matters?
Prepare the next generation to succeed
Wealth can do strange things to people. It’s important that your successors are prepared to handle the responsibility that comes with significant wealth.
To assess this, you should first conduct a review of your successors preparedness to handle the transition. Consider how money and responsibility may affect them and their lives. If there is a family business, consider if there are any knowledge gaps in respect to the business.
Every family is different, and every transition is unique. However, if you can go through the above steps, then you can drastically increase the chance of a successful transition.