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Business Ownership

Many wealth transfers fail – but yours doesn’t have to be one of them.

You’ve taken your business from a struggling start up to a successful full-scale enterprise and now you’re ready to sell and if you plan to use the proceeds to enrich your family’s future, there are a few steps to take to help ensure this newfound wealth will one day become a lasting family legacy.

Where did the money go?

According to a wealth transfer report by the Royal Bank of Canada, analysts expect baby boomers to leave $4tn of wealth to millennials within the UK and North America alone (some from the sale of a family business) over the next 25 years. Unfortunately, approximately 70% of family wealth disappears when it’s distributed across multiple generations. There are many reasons to explain why. Statistics say wealth transfers fail because most families don’t have the ability to make joint decisions or can’t make a system work with multiple stakeholders.

To stack the odds in your favour, you’ll need to bring people together, learn each other’s dreams and values, and create a strong family unit even as the dynamics change through births, deaths, divorces and second marriages. Here are some guidelines to help make this happen:

Build a strong family

Family strength comes from more than wealth – it emanates from strong individuals. To strengthen your loved ones, begin by supporting their goals and dreams. Help them build the confidence, resilience and perseverance to achieve their own success. Bolster their emotional maturity and values so they’ll make mature financial decisions.

Introduce your family to “the plan”…

Tell your family about your will and other estate planning documents that will be in place after the sale. To help, connect your loved ones to those who’ve helped build your plan, such as your estate attorney, accountant and trust professionals. Your advisors can help them gain the knowledge necessary to carry on your legacy. One caveat: Be clear with how much you want your advisors to share with your children.

…But don’t divulge everything at once

The promise of sudden wealth may inspire your children to rest on your laurels, so to speak. So balance educating them about your circumstances with encouragement to make a life of their own as independent, responsible, productive citizens. Any potential inheritance should be viewed as a safety net or a gift that must be treasured, not squandered.

Educate loved ones

Share how your wealth was built and how you view money’s purpose. Explain how grandma and grandpa rolled up their sleeves and invested time, sweat and tears into building a business from the ground up. And share the values that went along with that success, so your heirs will understand how diligence, delayed gratification and good stewardship benefit not just them but also those to come.

Hope for the best but be realistic

These steps may not work for every family, but they provide a starting point. And remember to be realistic. We can have high expectations of our children, but some can’t or won’t live up to them. However, if you keep all this in mind before you sell your business, you’ll have the best chance of keeping your wealth within the fold.

Next steps

  • Plan times for one-on-one sessions with family members to learn about their values and to talk about their dreams and how best to pursue them.
  • Teach younger children the value of self-reliance and the personal fulfilment of being a responsible citizen.
  • Introduce family members to your financial planning team.

DISCLAIMER: The information contained in this article is for general consideration only and any opinion or forecast reflects the judgment of the Research Department of Raymond James & Associates, Inc. as at the date of issue and is subject to change without notice. Past performance is not a reliable indicator of future results.

You should not take, or refrain from taking, action based on its content and no part of this article should be relied upon or construed as any form of advice or personal recommendation. The research and analysis in this article have been procured, and may have been acted upon, by Raymond James and connected companies for their own purposes, and the results are being made available to you on this understanding.

Neither Raymond James nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis. If you are unsure or need clarity upon any of the information covered in this article, please contact your wealth manager.