The Estate Plan is in Place, BUT….Is The Family Prepared?

By Brad Scott

Imagine… you build a successful business enterprise through years of hard work. You decide to retire and place the enterprise in the hands of new management. However, the new managers have no understanding of the company’s products, goals, history, values or mission. They have no experience in the field, let alone a basic knowledge of day-to-day business functions. There is great likelihood a company will not succeed under these conditions, and realistically, you would never trust these individuals with one dollar of your hard-earned wealth. Unfortunately, this is exactly what you are doing with your estate, and potentially the family business if you do not take the necessary steps to prepare your family for the responsibilities that lie ahead.

Historically, 70% of estate transitions fail[i] and only one third of businesses successfully make the transition[ii].  Studies show that the primary causes relate to reasons other than investment performance, poor estate planning or taxation related issues.  95% of the time the reason for these failures is due to either, a lack of communication and/or trust within a family, a lack of a clear vision or purpose of wealth, or simply family members not prepared for the responsibilities that are bestowed upon them.[iii]

It is therefore prudent, if not imperative, for families with successful business enterprises to focus on answering one of the most important questions they may ever be asked- “Is my family prepared for the transition of the family business, the family wealth and their future roles and responsibilities?”

As the Baby Boomer generation “matures”, one in six people are now over 65 years of age.[iv]  In Australia specifically, the Baby Boomers currently comprise 25% of the population yet they own 55% of the nation’s private wealth.[v]  FBA research indicates that 81% of Australian family business owners intend to retire in the next 10 years generating a wealth transfer of $3.5 trillion.[vi] 

When 70% of transitions fail, and we generally understand the reasons why failure occurs, shouldn’t we be taking steps to ensure that our own family and family business is prepared for the eventual “wealth tsunami”? 

It has been predicted that by 2020, when the oldest Boomers hit their mid-70’s, we will be in the midst of the biggest intergenerational wealth transfer in history,[vii] where 40% of today’s managers in family and small business will have reached retirement age.[viii]  Given we are facing one of the biggest leadership successions in history, the need for succession planning for family businesses and the successful transition of the estate NOW is even more important than it has ever been before. 

It is important at this stage to understand what this means.  It is more than just the estate plan, the will and enduring powers of attorney.  The estate plan simply prepares and directs assets and outlines where and to whom those assets will be transferred.  It does not prepare the beneficiaries for the challenges, roles and responsibilities for managing, directing and dealing with those assets.  Do they have the skills to take on the role, and if not, the time is NOW to prepare them?

However, like other parents you are naturally worried about the impact that telling your kids about your wealth will have on them.  Or is it about a perceived loss of control?

• Will they be treated differently by society? Will others take advantage of them?
• Will having access to money lessen their motivation and their desire to work?
• Will they consume the wealth in wasteful ways or make poor investment decisions?
• Will they have nothing left to pass on for their own children and grandchildren?
• Do my children have a sense of entitlement, or are they completely disengaged from the topic?

These issues are real and occupy the minds of families all over the country and for that matter the world.  However, let me ask you this.  What if you don’t tell them or don’t prepare them?  Despite the failure rate and dissipation of wealth and assets you worked so hard to build for the benefit of your family, history suggests the impacts can be far reaching and personal including family relationships, marriages and children.

No one knows when their family’s “wealth tsunami” event will occur.  If there is one thing we have learned directly from families who have started this journey, the common feedback is “I wish we started it sooner”. 

NOW has never been a better time to prepare your family. 

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About Brad Scott

Brad is the founder and Managing Director of EWM Group, which specialises in working with successful individuals, families and family businesses in protecting their wealth and their families for the benefit of current and future generations.  Brad works with families and their advisers internationally and is a keynote speaker on the topic of Family Governance, Coaching and Education and preparing and engaging the next generation.

EWM Group is a Gold Partner to Family Business Australia in the area of Family Office advice, Philanthropy, Family Governance and Family Office Wealth Management.  Brad can be contacted directly on 0416119070 or bscott@ewmgroup.com.au.

[i] The Williams Group

[ii] The Economist

[iii] The Williams Group

[iv] Australian Bureau of Statistics, http://www.abs.gov.au/ausstats/abs@.nsf/0/63230DE0557F3B83CA2581470023C559

[v] Ask Brad the reference

[vi] The MGI Family and Private Business Survey 2006 (in conjunction with RMIT University)

[vii] McCrindle Research, Australia in 202: A snapshot for the Future, Mark McCrindle

[viii] McCrindle Research, Australia in 2020: A snapshot for the Future, Mark McCrindle