Shortsighted Success

Private Wealth Magazine

By Mindy Rosenthal - 03/5/2009

The majority of ultra-wealthy family business owners have succession, personal trust and estate plans, but even the most successful owners are poorly prepared when it comes to protecting their wealth and planning for future generations.

… [According] to a 2008 study by Prince & Associates and Campden Research … [trust]and estate plans are often out of date and families simply are not implementing asset protection strategies, the study found.

The study, entitled “Protecting the Family Fortune,” is the first to focus on ultra-wealthy family business owners. …

Only 38.3% of those who have succession plans are implementing them, according to the study. … More than three-quarters of respondents have succession plans, but they are dominated by strategic business issues rather than family issues. When 183 high-net-worth families were asked to identify “highly important issues” in their succession planning, 72.7% cited strategic business issues and 55.2% cited family issues.

The study also showed that business owners are failing to keep their succession plans up to date. About 78% of the families have an estate plan, but 79.4% of those plans are more than three years old. The failure of families to update their plans is magnified by the fact that 89.4% of respondents say they have had life-changing events …

Failing to regularly review and update succession plans could be a costly mistake for many of these families, according to experts.

“Families need to work with an advisory team that not only … looks at estate and succession planning and asset protection but also tends to family dynamic issues,” says Chris Zander, managing director and head of the Multi-Family Office Group at U.S. Trust, Bank of America Private Wealth Management.

“The personal and financial objectives of the various family shareholders change and may become less cohesive as the family grows …,” notes Zander. “This makes it harder to find commonalities and can result in families not addressing important planning issues.” …

“Estate [and] wealth transfer plans need to address the allocation of asset ownership and voting control with an increasing number of family members as the business transitions further out in generations,” Zander says. “Ownership, control and management cover both financial and non-financial areas. …”

Psychological factors clearly play a role in families not keeping their estate plans up to date. About 55% of families surveyed say estate planning raises issues that are too difficult to confront. …

The study also found that many estate plans are flawed. For example, 93.4% say it is important for them to lower their tax obligation in a business transition, yet only 26.8% say it’s important to address this issue in a succession plan. Only 26.9% are using asset protection strategies, despite the fact that 89.7% say they are concerned about being involved in an unjust personal lawsuit or divorce. In fact, 64.5% have already been involved in an unjust suit or divorce. …

Mindy F. Rosenthal, managing director, North America, for Campden Media, specializes in the wealth management and family governance needs of ultra-high-net-worth individuals and families, with a focus on alternative investments and holistic family office services. More information is available at www.campden.com.