In order to plan, a family needs to consider what they are planning for. What is their long-term goal or purpose?
For some it is wealth preservation, for others it is maintaining a certain standard of living, and for others it is the family’s legacy. Answering the question of purpose is fundamental to the process of succession planning and it is often the hardest part.
Challenges that typically arise are a lack of common purpose (ie the family, as a whole, does not agree on their ultimate goal), and a failure to consider whether the common goal is actually achievable, given where the power/control lies within the family unit.
If, for example, the wealth and power is held by one or two individuals who are unwilling to engage in the process, succession planning needs to be looked at through a different lens; either those wielding power need to be convinced of the merits or those around them need to consider planning for themselves based on that unwillingness to engage.
It is therefore important at the outset to understand who ‘calls the shots’, what their vision is for the future and what drives them.
Are they looking to pass on wealth and control during their lifetime or on death?
Who do they consider to be part of the family for the purposes of planning – is it immediate blood family or a wider class?
What do they view as a successful plan? Is planning purely financially motivated or is there something more fundamental driving the approach?
A family business brings a further layer of complexity when planning, not least because arguably every wealthy family operates a business (even if that business is generically categorised as ‘wealth creation’).
Again, purpose is a key factor – is the business purely intended as a wealth generator or is it there to provide the family with a long-term vocation?
Is the intention that family members should be brought into the fold regardless of qualification/suitability? Are family members even interested in involving themselves in the business and sustaining a legacy?
The purpose of the family business and its long-term future are fundamental to discussions in this area and should be the bedrock on which any planning is based.
Articulating a purpose is, in itself, an important part of planning as it enables families to consider what drives them and to establish weaknesses that need addressing.
The purpose should ideally reflect a vision that is universally agreed by those affected, at least at a high level.
A purpose has limited value if it will ultimately fall away in the absence of the prominent individuals who have simply imposed it on the family. Even a well-planned wealth preservation structure is at risk if there is a significant lack of consensus in the future or if it is too prescriptive.