At this time of year, family relationships can come under strain – and affluent families are not immune.
In Australia, family disputes regularly play out very expensively and publicly as members of some of the most affluent families in Australia could attest. In fact, family conflict is the single biggest contributor to intergenerational wealth transfer failure. This is particularly concerning, given there is an estimated $3.5 trillion of assets likely to be inherited in Australia in the coming decades[1].
A long-standing problem
In 2002, the Williams Group published a 25-year survey of 3,250 intergenerational wealth transfers. Of the 70% of failures that occurred in that data set, 97% were due to family issues[2].
The biggest contributors were a breakdown of family communication and trust (60%), inadequately prepared heirs (25%) and a failure to establish a family mission (12%). While the study is 20 years old, the issues remain alarmingly current.
A common issue is the misalignment of expectations and aspirations between individuals of different generations (and their spouses). These problems are often fuelled by poor communication around sensitive topics, such as death, succession planning, clarity of various roles and responsibilities, remuneration parity and wealth equity.
Getting ahead of the issues
Because every family is different, there’s no formula for success. However, it certainly helps to have trusted advisors who take the time to get to know family members, listen carefully, think strategically, act sensitively and have access to multidisciplinary expertise, such as tax, corporate advisory, corporate finance, debt advisory, wealth management and legal services.
One of the most effective strategies to manage wealth, estate and succession planning is for families to come together regularly in a safe environment to discuss uncomfortable family topics as part of an agreed agenda. In these conversations, it is important that everyone has a voice, all the concerns are aired, decisions are documented and everyone is held accountable.
When there’s clarity and transparency around family issues, the underlying concerns usually dissipate. In many cases, it’s useful to establish the right governance structure through tools like family charters, shareholder agreements, Board committees, distribution policies, loan agreements and clearly defined roles, responsibilities and KPIs. Structuring assets in a way that allows for equitable future wealth transfer can also be helpful.
Family prosperity can also thrive when family members have healthy conversations about growing wealth outside of the family business, consider engaging a CEO or CFO if the next generation of family members have other passions and interests, find meaningful roles for everyone and involve younger family members earlier.
Establishing a family office can also help minimise the risk of family disputes and create smooth intergenerational transfer of wealth, estate and succession planning. As well as providing day-to-day administrative and financial services that make life easier, family offices can also function as safe hubs for all governance, insurance and financial information. Family members who have ready access to trusted information following a death in the family often find the processes that follow less disruptive and traumatic.
Family peace – the best Christmas present of all
As a Christmas present to your family, consider arranging a family planning meeting in the new year. That way you can all enjoy the festivities together knowing that there’s a plan in place to address any unresolved family or business issues openly and constructively in a safe environment. After all, where family peace exists, intergenerational prosperity is far more likely to follow.