The struggle of when to “negotiate the money” keeps many money makers with their families and runs on the delicate balance of wanting to do more harm than good in the negotiations. As negotiations get delayed, ambiguity and family drama builds up.
When first meeting with a potential client, it is important to emphasize the need to “prepare the heirs” for the responsibilities of the succession. If not, and the inheritance is caused by a sudden illness or accident, the trauma to immediate family members and their class can have disastrous consequences. The parent’s lack of willingness to discuss family finances and succession planning with children (minor or adult) stems from the upbringing of the politics of not discussing money. This old custom has to be changed. When the time comes when Generation 2 (G2) should take the reins, they are mostly unprepared.
quick start
We encourage these conversations to begin early and often with regular family meetings. It’s also a good idea for families to attend financial conferences. Failure to do so could be disastrous for the G2. For example, several years ago, one of us (Jeff) was approached by a young man in his late 20s who had studied music in college, had a budding career as a musician and composer, and his Was on the way to live the dream. Suddenly, his father died of a heart attack and his mother was bedridden due to a prolonged illness. The young man had to participate in the family real estate business, which he knew little about and was not ready to manage. He had to put his budding music career on hold and jump into the family business and try to manage it as best he could. Jeff’s firm took over some of the property for a few months, and the engagement ended. Six months later, the young man was emotionally unhappy. Between handling the family real estate portfolio and taking care of her invalid mother, she was a lost soul.
It’s All About Trust
When family businesses are involved, the result of not talking about family money and business transition plans mirrors the plot lines in the award-winning TV series. succession, Three siblings are fighting among themselves for power and control. Basically, it’s about trust. The family leader doesn’t trust the next generation to be good stewards, and the next generation doesn’t trust the family leadership to successfully transfer the poles, so everyone is scrambling to protect themselves.
We had a situation in which our client was a brother and sister inherited a second generation real estate family business from their parents. Dad died eight years before mom and handed him the baton. When the mother passed away, her children were in their late 60s. The mother’s last breath was to tell her 65-year-old daughter, Kate, that she had to handle the family business as executor and trustee because she did not trust her son’s financial ability to make important decisions. Up to this point, the siblings worked equally in the business.
After mom’s passing, for three difficult years, Kate was placed in the very challenging role of managing her brother, as well as a failing business in which they each owned 50%. The daily struggles of their inability to function together had a dramatic effect on their relationships as siblings and extended families. They haven’t spent holidays together in years, communication between families is hypocritical and the youngest generation hasn’t even met some of their cousins, despite living a town far away. The slide in irreparable bonding damage is gathering pace with the high octane fuel providing outrage. On top of this, her brother’s two children currently work for the business and see an opportunity to continue their father’s legacy.
only 30% family business The second generation survived. Williams Group wanted to take a closer look at the businesses and families that didn’t make it and find out why. In a 20-year field study, we interviewed more than 2,500 families and family businesses to find out what was behind those families that didn’t successfully convert their businesses. Success is defined as relationships that remain intact and families maintain control over their wealth. Lack of trust and communication was responsible for 60% of that failure; 25% of failure was attributed to unprepared successors; and 10% represented a lack of alignment in family values. (Williams and Preiser Preparing Heirs (2003). The key variables in successful relocations are family relationships. Fear is well-founded. Inheritance is built on relationships, and relationships are built on communication skills. Communication skills are handed down along with family assets. Taking the time to strengthen communication skills to manage conflict, coordinate action more effectively and reduce unproductive patterns such as judgment, gossip and lies.
Imagine the surprise when the next generation learns that the partnership structure of the family business includes their father’s sister, who is still alive and plans to sell the business. Or they learn that the belief in their name is actually something they’ve been able to access for the past 10 years, but they didn’t know it was “their money.” Our favorite is when they learn that Mom and Dad named the eldest son as trustees and gave him the business outright.
A 2007 survey by US Trust Company (now Bank of America Private Bank) found that more than half of very wealthy parents were concerned about the negative impact of money on their children. Another study by RBC found that less than 10% of parents had taken action to prepare their children.
10 Tips for Discussing Business and Money Transitions
Advise your customers to take these steps to open up avenues of communication.
- Join G2 in the conversation about how they see themselves contributing to family wealth and business to avoid derailing their motivation. Place the expectation on them to find meaningful ways to contribute to the distribution or positions in the family business as opposed to expected because of their bloodline.
- Create an open dialogue about your values ​​that shape the decisions you make and avoid sibling rivalry. For example, you can value hard work and achievement and provide opportunities for family members who demonstrate those values.
- Protect the vision and legacy by involving G2 and asking for their input as they see themselves fit into the family business. They are more likely to buy the sight if they have a say in how it is made.
- Openly and honestly engage in missed conversations about business plans, and avoid the destructive forces of cordial hypocrisy.
- Strengthen trust and communication to protect family harmony and unity by examining working communication patterns and reducing breakages such as gossip, poor coordination and an inability to work through conflict.
- As long as you’re alive, enable G2 to apply resources, and give them a long runway to learn from you on how to become a responsible steward. Ask them to share where they see they could have the most impact on the business, and co-design a path that you both feel confident about.
- Align to standards that indicate when they are ready to participate in the management of their assets. For example, they show the ability to save a certain percentage, hold a full-time job or find meaningful work for a period of time.
- Brainstorm with them to generate new ideas about how resources can be grown and applied. In one family, the daughter who went to school for interior design suggested designing a new line of cars that would appeal to the younger population. It became the fastest growing division of the company.
- Align on family values ​​and cultivate a deeper understanding and appreciation of each other.
- Clarify the roles, responsibilities and standards for operating the business and ensure that the estate plan is implemented.
Amy A. Castro is the president of Williams Group, a family coaching firm in San Clemente, Calif., and Jeffrey M. Verdon Jeffrey M. Verdon Law Group, LLP, is a managing partner of Newport Beach and Silicon Valley estate planning and asset protection law firm that represents affluent families and successful business owners. www.jmvlaw.com
