Succession planning is the art of preserving and passing wealth to new generations. It views your plan as a whole, taking into account family circumstances and wishes beyond your own immediate concerns. Used successfully, it can preserve wealth and family heritage over a number of generations.
What is succession planning?
Succession planning involves the creation of a plan which can be updated with the family to provide stability and certainty regardless of the prevailing economic situation. It involves the use of legal structures such as trusts, wills and effective Inheritance Tax planning.
Effective succession planning involves viewing the family as a whole and taking into account the wishes and needs of each generation. It is a key consideration to ensure stability when passing the torch to the next generation.
How will it help?
It is the nature of life that it will come to an end one day. Whilst we cannot control death, we can control what happens to our wealth. Planning to pass on wealth helps create stability within the family. It limits the effect of tax on your wealth (Inheritance tax is currently charged at 40%) and can limit the effects of bad lifestyle choices by family members.
What happens if I do not make adequate plans?
It is often said that family wealth is created and lost within three generations. Approximately 70% of wealthy families lose their wealth by the second generation and 90% lose it by the third generation.
There will come a time when your financial assets and person possessions will be passed on even if you take no action. However, if you take no action you will have no control over how that happens. Even if you have a Will in place, it may not be enough as the person you are passing it onto may not have adequate plans in place themselves.
What should I consider:
Your family circumstances
Who your family members are, their location, financial position and aims in life are all factors you should consider when creating your succession plan. Personality plays an important part in management of family wealth and this is a key consideration when considering your plan.
Your lifestyle now and in the future plays an essential role in your plan. You must be sure that you have sufficient wealth remaining to enable you to enjoy your lifestyle. Once you are certain of what you need, you may be able to pass on the excess to the next generation.
Your source of wealth
If you are part of the generation that created your family wealth, your source of wealth (for example a successful business) may still be in existence. If so, a successful exit strategy must be created ahead of time.
Your existing structure
Consider if your existing legal structures meet your requirements. For example, does your will provide sufficient protection for your beneficiaries.
It is essential for your advisers to work together on your long term plan so that your financial structure compliments your legal structure rather than working against it.