Succession Planning: Along with businesses, even families need to adopt, adapt to secure interests

While most UHNI individuals or families recognize the need for succession planning, not many are disciplined about it. For most, succession planning is something one pays attention to only on nearing retirement.

By Amit Patni

While most Ultra High Net-worth (UHNI) individuals or families recognize the need for succession planning, not many are disciplined about it. For most, succession planning is something one pays attention to only on nearing retirement. Irrespective of their net worth, succession planning is more of an essential in current times rather than just a duty of passing on the baton to the next in line. A look back at history provides numerous examples with outcomes of both aspects – having a well-defined succession plan as well as not having one in place. And clearly, the benefits of having a formally well-defined succession plan in place outweighs the other.

Planning is simpler for families with a single marriage, one generation and/or few siblings. However, inheriting ancestral property, siblings from more than one marriage, and/or multiple generations of family members increases the complexities of division of wealth or business opportunities. Sibling rivalries in businesses are a real problem and if not identified well in time and dealt with, there can be a massive impact on the business. In recent times there have been many scenarios wherein members of powerful business families have been entangled in public spats and lawsuits over businesses and wealth allocations. These spats and fights tend to have adverse effects on their business, stocks, employees, and even other family members. Families have broken-up, reputations maligned, and businesses failed only because the generation in control refused to break tradition and consider adopting the practice of planning in advance to ensure a smooth transition.

Just as businesses need to adopt and adapt to the changing market trends, even families need to revisit and reinvent their ownership model. With families growing into multiple households, their dynamics also become complex inevitably. A group of individuals within a family can have a much wider set of interests, expectations and behaviors. It is important to understand the dynamics of the family tree to set a good context for addressing the needs of the business, family, and future leaders. For a smooth transition of succession, support from the family is of utmost need. It’s never too early to put a succession plan in place and many business families have already started taking a step towards setting up a plan well in advance. To write a

successful succession plan, the first step is to identify the ideal successors who might or are best suited to take over the business and then outline the best arrangement for the transition. While they are two separate kinds of plans, every succession plan should also include an estate plan for both the owner and the successors. An estate plan deals with the management and distribution of property upon death.

While bank accounts, life insurance, and even ownership of real estate properties can be secured by just making a nomination, it is best to make a formal will. In the event of the promoter or family member departing without a will, or intestate, the laws crafted for the concerned region will apply, which could take time and are often the cause of several disputes. Professional bankers, lawyers, wealth managers and other experts help structure estate planning for family–owned businesses to keep it free of disputes, tax implications and potential legal wrangles.

The family member writing a will can also leave instructions specifying allocation for charities, and in some cases, giving responsibility for helping infirm relatives, or planting gardens, or ensuring the needy get medical help. Some of rich in western world are known to have left a fortune to their pet animal, or for welfare of the blind, or the poor, or for ensuring that a barren piece of land is turned into a garden and opened to public. With easier access to online financial services, it can even be written in the privacy of one’s home on a trusted and secure website of a top-rated bank or similar institution. All in all, through a will one can make a judicious distribution of one’s wealth and wishes; help the survivors, the way one would have wished to during one’s own lifetime.

Family successions can be a highly emotional and contentious matter, which can lead to major rifts within the family and the business, as the members involved choose sides. Strong succession plans are vital to the sustainability of any business and should include family meetings to discuss and define plans and the vision for the business. For even the most successful and closely held business owners, succession planning can be more difficult than other critical business decisions they have faced. Succession plans have helped in the survival of some of the top century old family owned business through multi-generational transfer of ownership and wealth.

(Amit Patni is Director at Campden Family Connect (CFC). The views expressed are the author’s own.)