Get buy-in on plans to preserve family wealth across generations

In many instances when wealth is created in a family – for example, through a successful family business – it is not preserved over successive generations, and often squandered.

According to the Stonehage Fleming report, the top five risks to long-term family wealth are:

* Family disputes or break-ups;

* Lack of planning;

* Failure to engage the next generation;

* Lack of future leadership and direction; and

* Failure to provide the next generation with appropriate training.

Both Stonehage Fleming and Sanlam Private Wealth identify a lack of communication as a major factor in wealth destruction.

“The latest Four Pillars research report revealed that client families view the alignment between generations on the purpose and use of family wealth as essential; however, to achieve this, ongoing communication and greater transparency are required,” says Layve Rabinowitz, director and head of the family office division at Stonehage Fleming in South Africa.

Gone are the days when families did not communicate about money. Your family should be informed about your wealth, know where your assets are, how to access them and whom to speak to about those assets, Stonehage Fleming says. “Plan a discussion to talk through your financial affairs with your family, including the next generation, so that everyone understands how to deal with those assets responsibly. Ensure that this discussion takes place regularly, so that all parties are kept up to speed.”

Marteen Michau, the head of fiduciary and tax at Sanlam Private Wealth, says a failure to discuss family wealth succession can have negative consequences for beneficiaries, including over-reliance on the money they expect to receive and mismanagement of an inheritance once it is in their own hands. “Parents are not helping children prepare for their inheritance nor manage it properly once received,” she says.

Michau suggests the following:

* Consider developing a family charter as a financial roadmap. This should include the family’s traditions and values, the family history, and its attitude to money. “A one-pager is fine. The whole family should be involved, and the charter ideally be reviewed and revised annually.”

* Share the charter with the professionals managing your wealth. “They could even be part of the conversation, to provide guidance and mediation if required, and can measure the structures the family has in place against the charter.”

* Explore each family member’s strengths. “For example, a millennial family member may want to pursue impact investing or advocate specific charities to support,” Michau says.

* Look after the money. Children need to be taught how to confidently handle their inheritance and how to invest it. “This usually requires external coaching, as schools don’t delve deeply enough into money management.”

* Make peace with children who have no interest in taking over the family business. “It is important that children and parents have a candid discussion about what the kids want for their lives. Then parents can see how best to help their children achieve their own dreams.”

* Keep things simple regarding structures and tax efficiency. Michau says the process of transferring wealth between generations is fraught with complexities. “It’s always advisable to work with fiduciary and tax experts who can look at all the options, and facilitate family indabas to discuss the ‘nuts and bolts’ of securing your family legacy.”

PERSONAL FINANCE