Great wealth transfer – don’t expect to just ‘muddle through’Published on 09 Sep 2020
Underpin your plan with purpose – Mark McMullen
According to a number of reports, an estimated $30tn is set to transfer from baby boomers to their Gen X and millennial children over the next two decades. At no point in history has such a vast amount of capital moved through the hands of one generation to another. This so-called ‘great wealth transfer’ presents enormous opportunity in terms of how and where to allocate it but many challenges as well. It isn’t enough to carry on as usual and hope for the best.
Many of the families we work with perceive tax or a market recession to be their biggest challenge. The great concern, though, should be readying themselves properly for the successful transfer of wealth to the next generation. For those families without a watertight plan, it could be catastrophic, ultimately leading to the decimation of their wealth.
One common pitfall is that families are so busy they fail to discern the real, big risks they face. For our clients, time is the rarest commodity. They tend to focus on dealing with the immediate day-to-day problems and sometimes fail to see the wood for the trees. One good thing to come out of the social restrictions around the world due to the Covid-19 pandemic is forcing people to slow down and consider what’s really important to them – to take a longer-term view.
If you plan your succession properly, starting first with purpose, values and the philosophy of your wealth, you have a much better chance of success. Helping families recognise the need for establishing a purpose is often the first hurdle. Many just muddle through and hope for the best. The first question I ask clients is what their wealth is for. I then work with them to establish what success ‘looks like’ to them. These conversations can often turn into long discussions and, ultimately, form the basis for a formalised purpose.
Involving all family members in this process is crucial. You can’t assume the next generation shares the same point of view and, by encouraging debate, even if agreement isn’t reached, understanding is achieved. Purpose by definition must be something that will stand the test of time, so having the next generation air their views is vital. Over-communication is always preferable to under-communication.
Mark McMullen is Deputy CEO of Stonehage Fleming.