Family wealth preservation can be greatly enhanced by aligning legal wealth transfer structures with the readiness of the next generation. While trusts, tax planning, and governance frameworks provide a strong foundation, facilitating preparedness in future heirs ensures a smooth and successful transition of wealth.
The significance of preparing the next generation for successful wealth transfers is described in this article through real-life examples and practical strategies.
When the right legal structures proved insufficient in ensuring successful wealth transitions—real-life scenarios.
Scenario 1: Consider a family business where the owner had implemented comprehensive succession planning strategies. The heir, though well qualified on paper—with an MBA and several years in the company—demonstrated concerning financial acumen, leading to impulsive business acquisitions and inadequate risk assessment, thus impacting the overall health of the business.
Scenario 2: The certified successor’s struggles with long-term philanthropic decisions posed challenges for a family foundation. These scenarios demonstrate that legal structures alone aren’t enough for successful wealth transitions; preparedness and sound decision-making are crucial.
Measuring True Preparedness
The above scenarios illustrate how the generally accepted approach of evaluating successor preparedness via age milestones, educational accomplishments, and financial literacy might not be enough to demonstrate on-ground results or business success. How then does one measure true readiness in next-generation successors?
Daily action and decisions: Meaningful indicators of readiness emerge in daily actions and decisions. A successor’s management of current resources provides insight into their capability for larger responsibilities. This includes how they handle business operations, approach investment decisions, and work with professional advisors. For instance, an heir who successfully manages a small portfolio while maintaining disciplined personal finances demonstrates more promising signs than one who simply meets educational requirements.
Sustained patterns: The depth of preparedness becomes more evident through sustained patterns. A successor might articulate sophisticated investment concepts yet struggle with practical application in changing market conditions. Others might display technical competence but lack the judgment needed for complex wealth management decisions. Understanding these patterns helps identify specific areas where additional development is needed before full wealth transfer.
Creating Alternative Paths to Responsibility
Building on these indicators of true readiness, families can implement structured approaches that systematically develop necessary capabilities. When complete wealth transfer appears premature, intermediate steps might offer practical solutions to address the specific gaps identified in the readiness assessment.
Benefits of a staged approach: This staged approach begins with delegating responsibilities that match current capabilities—perhaps managing a single investment property or overseeing a defined portion of the investment portfolio. Each assignment directly corresponds to the readiness indicators discussed earlier, allowing for practical demonstration of decision-making abilities.
Enlisting support: Third-party trustees serve as essential partners in this development process, providing the objective assessment needed to evaluate progress in each area of responsibility. Their role extends beyond protecting assets to establishing clear benchmarks aligned with the meaningful indicators of readiness and providing consistent feedback on progress. This professional oversight helps create accountability while charting the course towards comprehensive wealth transfer.
The Courage to Communicate Hard Truths
Addressing concerns becomes more constructive when clear readiness indicators and structured development paths are in place. Conversations can now be focused on specific examples tied to the established benchmarks and developmental goals versus just general discussions about preparedness.
Here are some examples of potential conversation areas around key aspects that impact preparedness for successful wealth transfers.
- Investment Decision Process
Jointly evaluate and understand how the successor/their teams aligned with the established investment committee protocols. Evidence might show they bypassed risk assessment steps in three out of five recent investment proposals. Have open conversations about risk mitigation strategies for future investments. - Portfolio Management
Explore how agreed-upon asset allocations have been maintained by the successor/their teams. If a portfolio review reveals several deviations from target allocation minus documented justifications, dive deeper into understanding the reasons.Perhaps they’ve unearthed & implemented some new innovative investment approaches that might benefit the enterprise in the long term? - Operational Efficiency
Learn more about how the successor/their teams have stayed on top of their business metrics. - Advisory Relationship Management
Inspire and motivate next-generation leaders to leverage the support and expertise of professional advisors for business growth. Equip them with the right tools to evaluate and incorporate technical guidance & advice before making critical business decisions.
The important role of professional advisors
Professional advisors contribute valuable perspective to these discussions by connecting observed behaviours to the staged development plan. Their involvement helps maintain focus on capability development rather than personal criticism while ensuring accountability to the established readiness criteria.
ABOUT THE AUTHOR
As the Senior Wealth Advisor at Beacon Family Office at Assante, Cory Gagnon has supported successful family enterprises to preserve, protect and transition their wealth since 2011.
Cory’s personal objective as a Wealth Advisor is simple. He is committed to supporting families to take control of the areas of their lives that truly matter to them. This commitment revolves around using specific tools and strategies that enable families to take action with confidence which will support them through life’s critical transitions.
ABOUT THE AUTHOR
As the Senior Wealth Advisor at Beacon Family Office at Assante, Cory Gagnon has supported successful family enterprises to preserve, protect and transition their wealth since 2011.
Cory’s personal objective as a Wealth Advisor is simple. He is committed to supporting families to take control of the areas of their lives that truly matter to them. This commitment revolves around using specific tools and strategies that enable families to take action with confidence which will support them through life’s critical transitions.
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Beacon Family Office at
Assante Financial Management Ltd.
Suite 519, 10333 Southport Road S.W.,
Calgary, AB T2W 3X6
