The emotional considerations of leaving your wealth to the next generation
Over the next two decades, it’s estimated that more than $80 trillion is expected to be transferred from one generation to the next. Many family-owned businesses, however, are unprepared for the complexity of such a transaction. They assume that it is strictly a financial transaction that can be handled by finance professionals and family offices. And while that’s partially true—it is a complex undertaking that requires professionals to help execute—I find that many family businesses have failed to consider the emotional elements involved in wealth transfer, especially when there is more than one beneficiary. Put simply, most families prepare the money—but not the people. Without addressing family dynamics and decision-making, even well-structured plans can fail.
The Emotional Impact of Wealth Inheritance
For family business leaders, discussing money with their children can be uncomfortable, perhaps because money can be a proxy for deeper issues for the next generation, including identity, fairness and belonging. That’s why many successful, rational parents tend to avoid the discussion. They don’t want to appear unfair, or they avoid the conversation to preserve harmony. But that harmony comes to an end eventually. Additionally, silence can create assumptions of who gets what, and a sense of entitlement that can grow out of control if not addressed. Ignoring the issue is basically guaranteeing that conflicts will arrive later.
The Limitations of Financial Planning for Wealth Transfer
The involvement of a financial advisor and/or a family office is pretty much mandatory for these situations. There are various considerations, including tax efficiency and legal strategies to ensure that your family and your business correctly navigate the rules and optimize the benefits. But this type of planning only answers how the assets will be transferred, not how the decisions made will be received by the next generation—and that’s where it gets fuzzy. However, not all financial advisors are comfortable or have the skillset to navigate this emotional quagmire. If this is true of your advisor, It’s up to the benefactor to make sure these critical issues are addressed. And this is where intentional family planning—not just financial planning—matters most.
Preparing the Family for What Comes Next
In most of the family businesses I have worked with in my role as a family business consultant, not all of the children have equal roles in the business or are even working in the business. This can create an issue of fairness—if one sibling is the CEO of the business and another doesn’t work in the business, should they receive the same compensation from the business going forward? It’s a dilemma that many will face. How do you weigh contribution versus compensation? You must set expectations and start preparing your family for stewardship of the business rather than a simple payout.
Fair Vs. Equal
In last month’s article, I explained the concept of “fair” versus “equal” in some detail. But it’s worth repeating that “equal” seems to be the default position of most family business leaders in estate planning because it feels safe. After all, if everyone gets the same, what’s there to complain about? Look one layer below that assumption and you’ll see plenty to complain about. In reality, “fair” often better reflects the contribution and responsibility of each child in the business—and it will set the company up for long-term stability, while “equal” may result in fissures that ultimately undo the business you have built. But making this distinction and decision ultimately requires early planning, early communication, and above all, clear family governance.
Creating Solid Family Governance
Family governance isn’t just about rules—it’s about your intentions for the business and the family. It’s a chance to align as a family, and to agree on family values, which will guide both the succession plan and the future operations of the business. This discussion should start early and happen often. Start by listening. Let the next generation express their desires. They key is to create a space where your offspring are comfortable talking about what they want, and what they expect. Some may not want to be involved in the business at all, while others will want to become the leader of the business. For those that wish to pursue interests outside of the business, you can carve out financial considerations for them, perhaps in the form of a one-time payout. For those that do want to be part of the business, it’s time to start setting expectations and grooming them for leadership. Clarity is key here. By coming together and agreeing on the values of the family, you’ll be able to create governance that has a guiding principle—one which will help avoid conflicts down the line. This is where a family business advisor can provide value. The early conversations about values and governance require structure and overcoming emotional holdups. An outside voice can act as an expert mediator to guide you through the process.
When families take the time to align on values, intent, and governance, wealth transfer becomes less about control and more about stewardship. That shift is what allows both the family and the business to endure.
