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LEGACY PLANNING

Legacy planning is becoming an increasingly important topic of conversation among family business owners and high net worth families. Beyond traditional estate planning, legacy planning is an opportunity to define, reflect on, and express what wealth really means to a family so that not only financial wealth, but also a family’s core values, are passed on to future generations. 

 

Preserving and managing tangible wealth in a complex and uncertain world can undoubtedly be a challenge. However, most often, failure to maintain wealth through the generations is due to lack of communication, education and trust among generations, rather than a poor investment strategy or a series of economic downturns. Families who are successful at transitioning wealth from generation to generation adhere to three core legacy planning principles. 

COLLABORATIVE PLANNING

DEVELOP A HEALTHY

FAMILY WEALTH CULTURE

DEVELOP THE NEXT GENERATION

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FAMILY BUSINESS WEALTH MANAGEMENT

Family businesses share a common set of challenges: liquidity for shareholders, capital for business growth and responsiveness to shareholder' control objectives. Balancing the financial needs of a growing business with the divergent liquidity needs of a growing business with the divergent liquidity needs of a growing family is one of the most critical issues.  

Family shareholder expectations of the business evolve from generation to generation. Sometimes the evolution is peaceful and smooth, but it's not unusual for gradual shifts in the family and the business eventually to erupt into a liquidity crisis, threatening to destroy the business. Avoiding such crises requires that family shareholders understand and address the financial forces at work.  

When it comes to the financial health of your family business, wealth management must be a top priority. The ultimate goal for your family business is to build a strong and successful business and also build a cash reserve that can sustain your family for generations to come.  

 

Creating an investment strategy informed by the risk tolerance of the family and its individual members can help shape an investment policy for the family's wealth.  

THE RIGHT APPROACH TO FAMILY BUSINESS WEALTH MANAGEMENT

Every family business is unique, with multiple variables to consider before devising a wealth management plan for a family. Devising a plan, therefore must coincide with a holistic view and thorough understanding of the unique set of variables that differentiates one family business from another.  

Once the family understands this concept, an experienced wealth manager can assist the family to establish goals. These goals need to align with many factors  such as; Business Succession, Estate Planning, Liquidity Needs, Geographical Distribution of Family Members, The Family Constitution, Family's Values Relating to Wealth, Current Allocation of Wealth including value of the family business, and the family's current Investment Strategies.    

WHAT IS YOUR FAMILY BUSINESS WEALTH MANAGEMENT PLAN?

A Wealth Management Plan incorporates the aforementioned variables and goals in a documented plan, it will typically outline how to achieve those goals and provide clarity on the practical hemisphere of those goals. Differentiation will be drawn between, wealth creation and wealth preservation for the family. Like a business, a wealth management plan is dynamic and not fixed, it changes as the underlying variables change and constant maintenance and updates are critical to reflect changes in the family dynamics and goals. A family’s wealth management plan will also ultimately determine the investment strategy of the family. 

WEALTH MANAGEMENT STRATEGY

A wealth management strategy is based on the Wealth Management Plan, this would be the practical implementation of the plan. The focus on a wealth management strategy is not merely based on investable or liquid assets but reporting and managing the overall asset allocation. Family wealth strategies are complex, there are various factors to consider, which should be managed by professionals.  

 

It could typically entail:

  • Investment Choices

- Allocation of Investable Assets 

- Private Equity Instruments 

- Structured Investment Products 

- Derivative Instruments 

- Hedge Funds 

- Traditional Investment Vehicles 

  • Tax Planning

  • Succession Planning

  • Managing Risk

  • Family Trusts

  • Retirement Strategies

  • Reporting on Overall Asset Allocation

BEING RESPONSIBLE WITH YOUR FAMILY LEGACY

Wealth generated through a family business carries responsibilities that future generations must maintain. The eventual successors of your business must understand their obligation to guard and grow the family wealth for future generations. This means that business successors must be taught how to handle the burden of this responsibility. If your family is wealthy, those in charge must effectively manage the money, or they must understand how to manage the people who manage the family’s money.