What is the most difficult conversation you have ever had to have with your kids?  Was it the “birds and bees” talk, the “who to marry” talk, the “saving for a rainy day” talk or was it the “what happens when we die” conversation.  At different stages in the life of our families we have had to engage in difficult conversations.  Sometimes it is the parents who are uncomfortable, sometimes the kids and sometimes both.

Perhaps one of the most challenging conversations we must have within our families is the one that most of us never actually have.  And that is the conversation about the distribution of assets once both Mom and Dad have passed on.  This is sometimes referred to as the “death talk” and many kids simply do not wish to engage in this conversation with their parents – the idea that “if we don’t talk about it, it won’t happen” is common.  Although the kids might find the topic distasteful, parents often avoid engaging in dialogue with the mistaken belief that whatever they decide will rule the day or that somehow the kids will work it out after they are gone.

Since we in North America no longer live in a society where inheritance is dictated by tradition, culture or need, the issue of how to leave one’s estate to family can become quite difficult and complex.   And when we consider the fact that the largest intergenerational transfer of wealth (estimated to be at around $4 trillion in Canada) is currently in process, those of us who truly understand biblical stewardship (God owner – me manager) cannot escape the responsibility to transfer this wealth well and in keeping with our Master’s wishes. What then are the keys to success?

We do not have a lot of statistics surrounding the failure of families to survive a transfer of assets, but anecdotal evidence suggests that there is much to be learned about transitioning well. We do however have statistics about the wealth and asset transition of family owned enterprises.

Some of you reading this may not be involved in a family-owned or controlled business, but because this scenario is frequently fraught with many of the same challenges related to succession and wealth transition in all families, it might prove useful to examine these challenges and extract lessons we can all learn.

Consider these facts about Family-owned business:

  • 85% of all private enterprises are family owned
  • 70% of jobs created come from family businesses
  • Family businesses create approximately 65% of all tax revenues
  • Family businesses make up 60% of the GDP
  • Family businesses account for 50% of charitable donations

Staggering, isn’t it. Unfortunately, only one third of family-owned businesses survive the transition to the second generation. In turn, the chances that your grandchildren will take over your business are about 1 in 10, according to chartered accountants BDO Dunwoody. This statistic is true of both urban-based and rural organizations.

In speaking with some members of Kingdom Advisors, whose practices focus on the transition of family wealth, to comment of the keys to successful wealth transition, they provided the following points.

Communication, communication, communication.  This simply cannot be stressed enough.  Studies show that 85% of failures to transition from one generation to another can be attributed to lack of communication and trust in the family unit.  So, transparent communication is key.  This involves active listening (a skill that must be developed by some).  There is a world of difference between a dialogue and a conversation.

Often communication breaks down around perceptions.  Different generations view the world through different lenses, formed through different experiences.  The younger generation might see issues of control coming from their parents and grandparents.  The older generation might see issues of entitlement in the younger generation.

Quality Advice.  If the generations are unable and unwilling to see each other’s perspective (often the case), then a qualified advisor who can help facilitate communication can help build a bridge.  Advisors who are successful in helping these families not only pay attention to the technical aspect of transitioning but especially the often overlooked softer issues.

Based on history, there are some things that simply cannot be said without outside help and counsel. Children may not have any experience or idea how to table tough issues with parents.  A neutral third party can get to the heart issues and take the hard parts out of the communication, surfacing issues so they can effectively be seen by both parties.

It’s not just about the money. In fact, money is not even the second or third issue although certainly when talking about wealth transfer, it would seem so.  Values are at the root of a good estate and wealth transfer plan and will determine the fruits.  No roots equal no eventual fruits. You may want to consider crafting a Family Values Statement which clarifies the “purpose” of your wealth.

In “training up a child” as the bible directs, there is wide spectrum of approaches and experiences.  The history of the family relationships plays a major part in this process. If history involves issues of pride, control, money attitudes, these can play significant roles in the estate planning process – good and bad roles.

Get the right focus.  Don’t focus on beating the tax man. The tax plan is not always the best relationship plan as the tax plan may create uncomfortable family issues. This goes back to the first key – communication.  Tax strategies should certainly be considered as part of a comprehensive planning process but the activity can displace the relationship work that is key to success over the longer term, from generation unto generation.

Understand the biblical context.  The plain fact is that there is a biblical context within which we are to position all of life and estate planning is certainly no exception.  We must take the time to understand this context – to understand what God says about money and possessions.  If the generation holding the assets is to ensure that the next steward is prepared, then they themselves must be modelling biblical stewardship. The children will better understand stewardship if they see the transferor taking the time to seek God’s counsel.  Getting it right in your own life, will go a long way towards ensuring you get it right in the transition process.

It’s a process.  It is helpful to remember that planning is a process and not an event.  Patience is key.  This is not something that can be done over a weekend or in one conversation.  Excellent planning is a multi-dimensional process that can involve many disciplines; legal, tax, accounting, wealth management, insurance and even psychologists can be in the mix – not to mention unique personalities.

Cookie-cutter approaches rarely work where more than one individual is involved – add a business into the mix and quick solutions are a rarity indeed.  Neither generation will be served if either rushes the process and there is wisdom to be gained through the process.  And as in all of life, wisdom is gained in the journey.

Bottom line – unless you want your legacy to keep CRA and the courts busy for some time, start the dialogue early, make it transparent, be sure to ask the Owner for His input, find a good quarterback to help lead the team, lay out the process and craft a plan that truly reflects the things that are important.


To find an advisor in your area that specializes in family transitions, visit www.kingdomadvisors.com

Recommended Posts