The Prince Charles Syndrome: Family Business Succession Planning for the “Lost” Generation

No one knows better than Prince Charles about the consequences of the older generation living longer, remaining competent, and Family Business Successionperforming well far past traditional retirement age. These days, in addition to the traditional risks of illness, death or incapacity of a key family figure, the new risk to family cohesiveness is the impact of an increased lifespan on individual goals and life plans. Is there now a “lost generation” of baby boomers that have worked their entire lives for a seat at the table that may never be theirs? As advisors, how can we convince families to put that conversation on the table and what are some of the solutions to this issue?

In the family business, and in the increasingly common co-ownership of investment and commercial assets through family limited partnerships and limited liability companies, the increased work lifespan of the older generation can lead to the delayed succession of the middle generation.

In essence, with the older generation in good physical and mental health and working far longer, the middle generation may, in effect, be knocked out of position and never get its day in the sun. By the time the older generation decides to move along, the individual goals and life plans of the middle generation may have been passed by, and the baton may be passed to the next generation.

Strategies to mitigate this new risk include intentional strategic planning and clear communication among all generations as to what the expectations are for the working lifespan and when the baton should/will pass. A first step is to try to have an upfront conversation with the family about what is going on and what it means. This new risk has financial consequences to the “lost generation” family member who may have been counting on the ascension to leadership to finally attain his or her financial goals of asset ownership and increased salary;  if his or her “day in the sun” never comes then financial security may never happen.

From an overall estate planning point of view, it may make sense to “skip” the lost generation and transfer the wealth to the next generation that may have more desire to innovate and risk. However, the financial security of the “lost generation” is a real issue that must be acknowledged, addressed, and handled so that the entire plan can move forward.

If there are insufficient resources to satisfy each generation’s financial needs and expectations, hidden conflicts and agendas can surface. The “next generation,” likely chomping at the bit to take over, needs to understand that the middle generation and its financial expectations need to be addressed, and the senior generation needs to understand that they must eventually pass the family baton. Family members, however, won’t want to move aside for the next generation unless they know that they are set financially for the rest of their lives. This is fundamental to human nature.

The issue of creating financial security can be solved, however, with intentional planning that includes family business members as part of the strategic plan. By building a sustainable net worth outside of the business, the next generation is more likely to have the resources to buy, sustain, and grow the enterprise. Family members that are secure outside of the business have the additional luxury of knowing that the younger generation can take risks – and if the risks don’t pan out, their own financial security will be unaffected.

It is critical for family business owners to understand that it is not about the successor, but rather the succession process itself. This insight, summarized perfectly in KPMG and Family Business Australia’s Family Business Survey of 2011, stated, “successful succession planning can involve juggling personal financial considerations, retaining family harmony, reconciling the ambitions and expectations of particular family members and safeguarding the future of the business.”

The CPA as trusted advisor can assist in this succession planning by working closely with the family on a regular basis. Topics and strategies should include:

  1. Intentional financial planning. As part of an annual review, discuss the net worth of key family members, particularly the net worth outside of the family business, and then help develop a process for evaluating each of their personal financial wealth and income goals.
  2. Communication. This is key. Each year, ask questions that bring these issues to the forefront – how long do you expect to be involved? When do you see succession happening? Is there an exit strategy?
  3. Having a multigenerational discussion. Today, the concept of generational transfer is not really the right one – a 50-year-old woman may be re-entering the work force at the same time as her 22-year-old grandson – and they each may have similar prior work experience. It is critical to understand the fluidity of traditional generational lines and the changing roles and expectations.
  4. Urge all family members to begin financial and wealth planning early. Encourage the family and family business system to be aware that while the business is the main source of income and wealth for all generations, it is critical to view it as a “system.” Every action causes a reaction and intentional planning is as much about making sure that all other key stakeholder’s plans are in place as your own plan is in place.
  5. Understand that life is a movie not a snapshot. As life advances, business, planning, and financial requirements must also be adjusted.

 

We don’t yet know if Prince Charles will become the next King of England, or if the crown will skip to Prince William. My guess is that it’s a topic that has come up on more than one occasion, although the Queen shows no visible signs of retiring. Time will tell whether Prince Charles will get his seat on the throne, but families should take note and talk openly about who will be filling the seats at their table in the coming years.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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