The past few years have seen significant academic effort devoted to the study of family businesses. This is well deserved, because family businesses account for an overwhelmingly large portion of the economic wealth generated in Canada and in other developed countries. These academic studies focus on the reasons why some family businesses transition well from generation to generation, and others fail.

One such study used data gathered from 3,250 families who transitioned their wealth to analyze why 70% of the transitions fail. The research indicated that only 3% of the failures are due to inadequate or inappropriate professional help. The reasons for the rest of the failures, lie somewhere within the families. The most important single issue identified was the breakdown of trust and communication within the family unit. This breakdown, in turn, leads to a failure in preparing heirs for their responsibilities.

In order to be able to measure the success rate of wealth transfer, a definition needs to be agreed on what constitutes a successful transition of wealth. The authors of the study define it as “wealth remaining under the control of the beneficiaries”. The research indicates that there are four major phases to successful transitions:

  1. Development of a family wealth mission, strategy and roles
  2. Estate planning and preparation
  3. Estate transitions
  4. Post-transition performance of heirs in carrying out the family wealth mission

In turn, the five proven steps listed below need to take place in sequence in order to ensure that the family business continues to be an ongoing source of legacy for generations of family members.

  1. Assess the wealth transition plan
  2. Take action on transition plan deficiencies
  3. Prepare the family’s heirs
  4. Define the heirs’ self-preparation responsibilities
  5. Continue to evaluate and measure the family’s transition readiness.

 
For more information:

Joe Havas, FEA, CPA, CA,
Partner
Tel: 514-842-3911 ext 231

Email:

 


This blog was developed after reading book
''PREPARING HEIRS, Five steps to a successful transition of family wealth and values
Authors: Roy Williams and Vic Preisser
Institute for Preparing Heirs
Published by: Robert D. Reed Publishers''