Making a success of successions

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Not only are the vast majority of wealthy individuals planning to pass wealth on to the next generation, some even aspire to leave a financial legacy that lasts far beyond their demise. The grandness of these legacies will vary dramatically, but it is interesting that more than 60% of the world’s wealthy are looking to leave a legacy and that this idea has resonance right across the world.

Do's and don'ts, wills and won'ts 5 of 9 Succession: a crucial wealth challenge 3 of 9

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

For those who are looking to transfer wealth, or who have grander aspirations to leave legacies, there is the need for thorough planning. This fact is now generally appreciated amongst the world’s wealthy, with more than half agreeing that succession planning is important.

The perceived importance of succession planning increases with net worth — the more wealth individuals have, the more minded they are to responsibly transfer it. A similar pattern is seen amongst those with higher incomes. These two segments are generally very good planners: they want to leave a legacy, they believe in the need for professional advice and have other protections in place (e.g. prenuptial agreements; see chapter three).

Thinking about other differences, we see that succession planning is more important to men (60%) than it is to women (49%). This is probably explained by previous Barclays research showing that women take less of a role in financial decision making than men, and therefore are at more of a distance to planning matters (see also the call out box at the end of this chapter).

Religion also appears to play a role here. Those who identified themselves as secular in the survey do not feel inheritance planning is important — only 43% think it is, compared to 57% of the global high net worth community — nor do they care as much to leave a financial legacy.

Those who identified themselves as religious are more likely to place more importance on succession, with those who identify themselves as Hindu as being the most concerned with succession planning. Hinduism expert, Shaunaka Das, says that the “desire to keep money and businesses within the family grouping is particularly strong in India,” reflecting the family consciousness in India and the ancient system of delegating duties and profession to people (Jati system).

Different ages, different priorities

 

Looking at the different age groups there are some real contrasts. The importance of succession planning does not increase on a straight-line basis with age, as some might expect. Instead there is a U-shaped relationship between age and the importance of succession planning. As chart 10 shows, it is most important in the younger and the older respondents. We analysed why this might be, and identified life events as being important influences.

For those under 54, things that have already happened tend to have more of an influence than things that are about to happen. For them, triggers over the past 12 months include marriage, the purchase of property and inheritance. For those over 54, we see the reverse: things that will happen in the future are more important triggers, like the anticipation of inheritance or the sale of a business. After retirement, high net worth individuals are generally less concerned as they enjoy a stage in life where they are able to place more emphasis on their own needs.

One life event that is consistently associated with succession planning for all ages of the wealthy population is the purchase of property. Catherine Grum identifies a key reason behind this: “With financial assets, there are no emotional ties and they are easily divided if required; assets like family homes and holiday homes are emotional as well as financial assets, and are much more difficult to divide.” Gareth Morrell, Research Director in the Society and Change Team at the National Centre for Social Research, agrees: “It is complicated to share  (property) without potentially asking someone whose husband or wife has just died to move out of the house.”

Whilst these different triggers serve to raise the importance of succession planning in the minds of wealthy individuals, there is no guarantee that they will actually convert good intentions into actions. Barclays explored the risks and rules of such procrastination in financial decision making in the previous volume of Insights (Risk and Rules: The Role of Control in Financial Decision Making), and identified a popular technique for avoiding procrastination as “setting deadlines.” In the context of succession, this might involve setting a particular date when you intend to sit down with an expert advisor.

Catherine Grum endorses this approach: “When people are planning for tax matters or the sale of a business, they have clear deadlines and quantifiable benefits. With succession planning, these catalysts are often missing or harder to define. To manage this process many people would benefit from setting targets and deadlines. Meeting with a professional advisor is a first step toward this goal; the succession planning equivalent of a personal trainer.”

In the third chapter we move beyond issues of planning to look at how high net worth individuals are currently going about transferring wealth to the next generation; exploring key global differences and the merits of options like trusts.

Succession planning still lacks female involvement

 

Across all the areas of financial decision making, succession planning is perhaps the one where you would reasonably expect women to have the greatest involvement and input — given its fundamental importance to family dynamics and the future welfare of the children.

Our research identified that women are more aware than men of the conflict that wealth brings, and are more likely to feel that wealth places a burden on the next generation.

Yet female involvement is still lacking in this area. From our research, it appears that women place less importance on succession planning than men (49% of women believe it to be important compared with 60% of men), and women are less likely to take action. Outside of the US, women make less use of wills and are less likely to revise it if they have one.

Looking at changes in attitudes and behaviour across different ages, we find that the gender divide is lessening in younger generations. Younger women are becoming much more engaged in succession planning.