Make your inheritance count

How do you ensure a lifetime of investment and hard work are preserved for generations to come?

By

Australia’s about to see the greatest transfer of wealth in its history. What does that mean for those receiving it? How can they and their families ensure it becomes a meaningful legacy passed down through generations? It starts with good communication.

When families consider transferring their wealth to the next generation, they tend to focus on the complexities of structuring their affairs – on the finer points of accounting in order to protect their assets and minimise tax.

Yet far more challenging, and just as relevant, says JBWere Head of Philanthropic Services Shamal Dass, is the issue of family dynamics. It’s only by addressing this complex web of relationships – and the various power dynamics therein – that you can hope to understand and achieve what really matters to you as a family when you transfer your accumulated wealth.

1. For future generations

The transfer of capital doesn’t begin or end with simply passing it along to the next person in line. The ultimate goal, rather, is to preserve your family wealth so it can be passed down through the generations.

This necessarily starts with understanding your family’s collective vision based on shared values, Dass says. “Families need to ask the bigger questions like: ‘What’s the purpose of the wealth?’, ‘Where are we going?’.” It’s only by addressing these higher order issues that you can put the necessary framework in place to ensure your wealth continues to work for what your family believes in. This might seem a tall order for a family of contrasting, and sometimes conflicting, individuals and Dass says you certainly can’t assume the pathway for the next generation.

Nevertheless, it’s possible to remain true to your family’s underlying values with just a little bit of tweaking along the way, says Peter Roach, former chairman of Family Office Exchange Australia and an independent board member of a number of significant Australian families.

“It’s a matter of not compromising their core values – whether that’s service to the community or stewardship for the future, or other concepts like that – but modifying them in a way that’s contemporary and reflects newer generations.”

2. Look beyond the business

At the same time, you need to understand what each family member can bring to the table – their strengths and weaknesses, but also their personal priorities – so you can decide how best to move forward with all members engaged.

This may seem overwhelming, or even inconsequential, when your day-to-day reality is running a business. Caught up in the never-ending stream of daily minutiae, there’s little time to sit back and take stock of the bigger picture. Nevertheless, it’s important for all concerned – for those transferring the capital and for the recipients. It comes down to good communication; ensuring all family members have equal say, whatever their position in the family or family business.

This is where JBWere can help, stewarding the family relations as well as their wealth. According to Dass, it’s a matter of “guiding the family to a better place”.

It goes to the essence of good family governance. “People imagine family governance is some kind of document with a whole lot of prescriptive rules but really it’s about having a mechanism to make the important family decisions,” Dass says. Free-flowing discussions are an essential part of this.

3. Investing in diversification

Of course, different families will be confronted with different scenarios.

Some might be considering the ins and outs of succession planning as they look to transfer the family business. Others might simply be looking to transfer the accumulated wealth from a lifetime of careful investing.

For those who receive a lump sum, it could be the perfect time to think about diversifying their investments, Dass says – especially if they own their own business. In this way, they’re much more likely to preserve their wealth going forward.

“It’s not so much about growth but about protecting and preserving their wealth, ensuring they don’t diminish the inheritance they get from their parents.”

Dass suggests compartmentalising your inheritance. For instance, it’s a good idea to put some aside in a safety net of sorts, what he describes as your ‘no lose’ money. Then there can be another portion – perhaps 20 per cent – put towards building an investment portfolio. There’s also a chance you might want to invest some in your children’s education or even set aside a portion for philanthropy, to uphold those values you and your parents hold dear.

4. Taking over the business

Rather than transfer a lump sum, parents might want to pass on their business, which raises a whole separate set of issues. For starters, which siblings are actually interested in taking it on? Do they have the skill set or capacity to manage it? It’s worth figuring this out sooner rather than later so the appropriate person can develop the necessary knowledge and leadership skills to effectively run the show.

If there’s one person keen to take the helm, it may be that the other siblings continue as shareholders, Dass notes. How do you then balance their interests with the one managing the company? If you have a board, you might want to put independent people on it, who know the matriarch or patriarch and therefore uphold their interests, Dass says.

Then again, it may be that no one is interested in taking on the family business. “It’s then in the matriarch or patriarch’s interest to wind it up or sell it prior to their passing away.”

5. Formalise the whole process

Clearly, things can get complicated here and separating the management of family wealth from the family business can benefit everyone.

It may be an opportune time to form a relationship with NAB Private, which focuses on families rather than businesses.

“It’s almost a weekly occurrence now,” says Jason Murray, Customer Executive, NAB Private, “that we see a family’s lifelong efforts in business rewarded with a sale or transfer that generates significant wealth for the founders and their family.”

Whether it’s wealth advice with JBWere or protecting your new-found nest egg with NAB Private, outside help can make a huge difference, from a practical and emotional standpoint.

You may even wish to outsource some of the functions that help the family operate well – or create a family office if your family’s assets are significant.

As Roach notes, getting independent people involved “takes the emotional bite out of decisions that are made in families”.

“You often can’t get away from family dynamics.”