Financial Advisors

Family Succession Planning: Optimize by Recognizing Differences

Last time I wrote here, it was of engaging the whole family in initial succession-planning conversations. We introduced the Jones Family: parents Tom and Kathy, their children and primary beneficiaries, Elizabeth (oldest), Eric (middle) and Christina (youngest).

We revealed the behavioral insights of each to show variability in decision-making within the family unit and how these differences could derail meaningful conversations if not understood and managed. Indeed, succession planning is complex and emotional, whether within family units, across generations, or a wider circle of beneficiaries. The ways these critical discussions are approached impacts families for generations.

Wealth holders often think it is about them. While their wishes must be respected, the impact on the next generations must be considered too.

Talking and trust

Wills and related instruments can leave emotional scars, so the approach to succession-planning conversations must be open and transparent. There is no need to be morbid; still, talk about the inevitability of planning to safeguard your legacy.

If you’re really planning ahead, you have the added opportunity to make it a part of regular family discussions. This normalizes such discussions and gives everyone time to think.

Some family members will shy away from the subject, but if approached well, these conversations can be constructive and ensure a “no surprises” will and estate plan.

Regardless of whether the conversation focuses on a successful family business, great wealth, or very little money, The Big Conversation runs the risk of burning relationships, splitting siblings and otherwise causing immense heartache. I have seen family wars break out over photographs, jewelry, an ornament, a table and a family vacation home. These wars inevitably spill over to money-transition issues.

So, again, a conversational approach to succession planning ensures existing plans “fit.” For one, you won’t be around to referee, so knowing that the distribution of your assets benefits your family and invests in their life goals and plans will build trust and avoid or minimize family breakdown.

Trust is a significant factor in these family discussions. Be open to questions about allocation of financial assets and possessions. Your approach should ensure the beneficiaries feels heard, but that they also know everyone might not get exactly what they want.

Conflicting perspectives

Let’s look in on the Jones having a life-goals conversation. On the surface, it’s likely the conversation will go reasonably well. But parents don’t always have a deep understanding of children's goals and life plans. Thus, making decisions in isolation of this insight can be a major stumbling block.

Where does everyone stand?

  • Tom (Patriarch) wants the estate to be kept intact and the siblings to work in the business to build family wealth.
  • Kathy (Matriarch) wants her children to follow their life plans and to distribute assets so each child can pursue those dreams.
  • Elizabeth wants the estate to remain complete and expand the business to build family wealth, stating she is willing to work in the business, also agreeing not to change the status quo but to increase business success. And Elizabeth wants to retain the family home.
  • Christina also wants to work in the business but would be determined to diversify and use the wealth to invest in the company. She insists the family home be sold to release investment for diversification.
  • Eric cut through the louder voices to say he supported setting up a family foundation, with each sibling working to ensure its ongoing success for generations. Once his parents no longer require the family home, he wants the funds from its sale to be deployed in the foundation.

Already we can see that the parents are not on the same page. This needs to be rectified. The sisters will benefit from conversations with external business advisers, while Eric’s approach stems from family values.

In response, the family decides to bring in a professional team to work with them on the succession plan. Involving collaborative professionals (from attorneys to a facilitator and financial planning pro and, yes, even a behavioral science wonk!) can greatly improve succession planning.

Whoever is present, it is critical to capture shared and agreed moments, from specific asset/possession requests to shared family values.

Decision discussions

So, what does this scenario tell us? Like most groups or teams, families are made up of different behavioral styles, communication approaches, and biases.

Discussions that require decisions are more effective if decision-makers are aware of their own biases, communication styles, and decision-making variabilities. This requires a scientific approach to understanding people.

There needs to be some structure that everybody signs off on, even if they don't agree to every point. This provides external advisors with a starting point to build on.

And any discussion with a challenging subject – such as succession planning – needs to reach a point of collaboration at its core. Each family member must have a reference point regarding how decisions will be made, how conflicts will be handled, what the family’s goals are, and some critical components to the continuity plan.

Notably, the Joneses agreed on a commitment to shared family values at the beginning of the discussions. This now becomes an excellent point of reference. With that, communication with one another became more structured and productive. So, while each member has different needs and life goals, they can all focus on one shared thing – family values.

I’m not advocating a family foundation or any other specific solution. Even so, I know any conversation focused on one agreed goal, desire or initiative is more likely to bring people together. Among other reasons, succession planning is complex and even more so within a family because you are acknowledging the eventual passing of a loved family member.

Conversations and forecasting

The world has shifted in the past two years. Life goals have been taken out and reviewed; many people now want a more relevant future. Even if it’s just a one-page “to-do list,” drawing up a plan needs to be part of initial family conversations.

Then the family works toward building the longer-term family continuity plan, recognizing it might take 12 months to get the first iteration, even with advisors and facilitators assisting. Once completed, it must be reviewed periodically, always with that data on behavioral differences as a touchpoint.

With that, I encourage every family, regardless of wealth or lack thereof, to have clarifying conversations recognizing the uniqueness of each family member and their need to be understood, accepted and respected for who they are. This significantly enhances succession planning.

Going forward I will dig more deeply into the importance of behavioral coaching in family enterprises. For now, let me know how you might advise the Jones Family differently – keeping in mind your own biases, communication style and decision-making approach.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Hugh Massie

Hugh Massie is often referred to as the Money Energy Pioneer. This comes after 20+ years of helming the only behavior & money insights company, which he founded to discover, measure and manage the hidden influences of behavior and money energy forces on decision-making, performance and relationships.

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