Is 70% Failure Rate OK?

According to a recent Forbes article, 70% of intergenerational wealth transfers fail, according to research conducted on over 3,250 families who transferred wealth. That is, inherited wealth is dissipated by the heirs at this stunningly high rate.  It’s an international phenomenon.

So what is going on?

Surely families with the skills, work ethic and foresight to accumulate wealth also anticipate what it takes to successfully pass on their knowledge and vision to the next generation along with the assets? Not so much, as it turns out.

The researchers identified the root causes of the failures and found that the main reason was that no  planning or preparation was going on for the post-transition period. The  transferring families were not preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins.

None of the failed transitions could be blamed on poor legal preparation, inadequate financial advice nor improper tax preparation. Rather, these professions usually did well for their clients.

"By contrast, the 30% of families who succeeded did so with broad and well thought out planning, preparing both children and grandchildren for their futures. A key component was to identify a family mission as well as a strategy to attain it.  The heirs understood what the family’s identified mission was about the family wealth.  With that known they were given the opportunity to practice their roles for the future, in philanthropy, the family business and other ventures at a more minor level than they would have upon the passing of the patriarch or matriarch who headed the family at the time."

My own experience of over 40 years as a business lawyer confirms what these research results say. But why? Why is it not the 70% who succeed in their goal? The reasons are many but mainly fall into two broad categories, I would say - Assumptions and Fears.

Assuming that one or more heirs has the desire and ability to take over and manage the business, farming enterprise, real estate assets, or investment portfolio is dangerous. Even the fact that a child is already active in the family business does not guarantee they have the abilities to sustain it or share the mission of the parents as a reason to sustain it.

Then there are the fears which block communication and preparation. Some common fears which become obstacles to success are: "if the kids knew what we are really worth, they'd pressure us with guilt for money now, take advantage, stop working hard." Or fear of loss of control: "They don't know how to run it like I do. If I give them the decision making, it will go downhill." Maybe, but if they don't start to take over before you die, you pretty much guarantee your fears will come true.

Of critical importance in researcher Roy Williams’ work is the building or improvement of trust and open communication in families, to permit them to be among the successful ones in transferring wealth.  He does this through professional coaching programs, offering layers of learning for both those passing on wealth and those who will receive it.

If you have family wealth, congratulations. If you'd like to explore how I could help by coaching your family in this type of transition, email me at waverockcoaching@gmail.com

Lorne

Saved Alone. What Shall I Do ?

"Saved alone. What shall I do?" As I have written about before, many transitions in our lives come unbidden. They come with events so painful that we would never have chosen them in a million years. Yet over time we can choose responses which may bring to us and those around us the music of peace.

In the late 1860s life was good for Horatio G. Spafford and his wife Anna. They were living in  Chicago with their five children.  He had a successful law practice. Their home was always open as a place for activists to meet during the reform movements of the time. 

Until now Horatio and Anna had everything going their way. However, in 1870 their faith was tested by tragedy when their four year old son, Horatio, Jr., died of scarlet fever. The Spaffords were devastated. In October of 1871  Horatio faced another test of his faith. A few months before the Great Chicago Fire, Spafford being a wealthy man, had invested much of his wealth in real estate by the shore of Lake Michigan. Not only did the Great Chicago Fire destroy most of Chicago but most of Spafford's holdings were destroyed. 

The Spaffords did not despair. They still had their home and their family. Though their finances were depleted, Anna and Horatio used their resources to feed the hungry, help the homeless, care for the sick and injured and comfort their grief stricken neighbours. The Great Chicago Fire was a great American tragedy; the Spaffords used it to show the love of God to those in need.

In 1873 Anna's health was failing and hoping to put behind the tragic loss of their son and the fire and to benefit her health, the Spaffords planned a trip to Europe. The day they were to sail for Europe Spafford had a business emergency and could not leave, so he sent his wife and daughters on ahead and planned to follow on another ship in a few days. On November 22, 1873 the steamer they were on was struck by another ship and  sank within twelve minutes in the middle of the Atlantic Ocean. Only 81 of the 307 passengers and crew members survived this tragic shipwreck.

Anna Spafford was taken to Cardiff, Wales where she telegraphed her husband the brief and heartbreaking words, "Saved alone. What shall I do..." Horatio and Anna's four daughters had drowned. As soon as he received Anna's telegram, Horatio left Chicago to bring his wife home. Sailing across the Atlantic Ocean the captain of the ship called Horatio to the bridge and informed him that they were now passing the place where the steamer was wrecked. That night, alone in his cabin Horatio G. Spafford penned the words to his famous hymn, "It Is Well With My Soul." 

How many thousands, maybe millions, have been moved and comforted by that hymn? Click here to watch and listen to it performed by my friend Brian Doerksen.