30 September 2021

Wealth and prosperity – keeping it in the family


Expansion & Improvement,

Wealth Planning & Private Client

There is a widely held perception that family wealth created by one generation is gone by three generations time. But is this ‘rule of three’ actually a reality for family businesses? More recent data would suggest this is far from the truth and with some careful forethought and planning, it certainly doesn’t have to be the case for yours.

In this article, George Style looks at how to protect and grow family wealth for the next generation and beyond by making the right decisions at the right time.


Managing how your wealth is held

The first step to protecting your wealth is understanding how and where it is invested. Some families wealth will be entirely invested and used in the business, others may have assets in the business that could be re-deployed elsewhere, such as land or property, or surplus profits.

Money tied up in the business generally carries a higher risk compares to other types of assets, as it is exposed to the challenges and issues associated with a particular sector. Other assets, such as property and investments, can be managed in a way to diversify risks preserve value.

It can be tempting to move money into a ‘safe’ place in order to protect it for your family but on the flip side this may hamper growth and threaten the future of the family business.

However it’s long term planning that creates long term success so it is critical to consider:

  • where your wealth is stored or invested?
  • what level of investment is required to sustain the business performance; can any assets be invested elsewhere?
  • do you have the right balance of assets and investments to provide an appropriate level of income for family members? and
  • is the wealth structured appropriately for the long term, and does it address issues such as inheritance tax?

There are many factors that shape individuals’ attitudes to risk and decision making about your wealth succession so it’s important to bear these in mind as you plan for the future – there is no ‘one size fits all’ solution.


Managing family expectations on family wealth

Lifestyles and expectations of family members can vary hugely between generations, and managing these successfully is critical to sustaining wealth through generations.

Not only do lifestyles and spending tend to increase over time, but as wealth moves down through the generations the number of people expecting to benefit from the family pot increases.

In our experience, it is the families that have clear rules and responsibilities for those hoping to share in the wealth, and a plan that is understood by all, who are most successful at managing attitudes and expectations of family members.

Those that have created wealth can have a very different outlook on spending to those who have inherited or had it bestowed upon them. The role of the wealth creators is not straightforward, it can be a huge responsibility for the wealth generators to hand down money in a way that doesn’t create entitlement or dampen any kind of work ethic amongst the younger members of the family.


How do you create a successful family culture that invests for the long term?

Far from being a risky business, research suggests that family businesses can be more successful over time because they take a long term view across all aspects of their business

Developing a strong family culture that is focused on the long-term is a critical success factor.

One big decision the owners of a business have to consider is whether to sell the business and pass on money to their family or pass on the business as it is.

There are some key questions to ask:

  • Can you trust the next generation to manage your family business well?
  • Is there a natural successor?
  • Could someone become a successor with the right training?

If there isn’t someone you feel you can pass the business to you may be tempted to sell. However individuals who sell their business can find it curtails their ability to generate income and wealth, as typical stock market returns are lower than many business owners experience – and that has consequences for an ever expanding family.

Once you have a plan for succession it is vital to communicate it clearly and sensitively to your family. You need to get the communication right in order to create stability and certainty which are all crucial for the business. Relationships are always key but managing family relationships can be much more emotional and subjective so having a plan you have discussed with objective business advisers works well.

A recent survey revealed 44% per cent of billionaire and multi-millionaire clans had no succession plan at all which simply puts everything you’ve worked for at risk.

Haines Watts can help you come up with a succession plan that will work for you, your family and your business.


Get in touch with us to discuss how to keep your wealth best protected as you plan for the future.