For ultra-high-net-worth families, wealth management is about more than managing money. It’s also about envisioning strategic planning for the future, including planning for assets as they pass from one generation to the next – and, possibly, even the next. Similarly, legacy planning is more than creating an estate plan, it adds personal expression guided by purpose, “to make the impact you want to have on the world – the mark you want to make,” says Shelley Forsythe, Director of Family Enterprise Planning, BMO Family Office. Legacy planning takes time and is a continual process, especially when adding voices from different generations.
Legacy planning is also about determining family values that guide future generations, preparing heirs to be stewards of the wealth and much more. However, legacy planning, is often easier said than done, especially with complex assets and structures that could involve businesses and real estate in various locations, as well as multiple family members across generations.
While a family office arrangement can help support a legacy plan through administration, management, and governance mechanisms, several factors can complicate the process, from tax and legal issues to the emotional challenges that arise from family dynamics. “If you want assets to pass multi-generationally, then there needs to be a thoughtful and intentional approach to how you’re going to organize that,” Forsythe says. “What is the purpose of the wealth and family? What conversations will support the shared vision for the future? What kind of ‘flexible’ roadmap do you want to co-create? What kind of frameworks, plans and processes make sense to put in place from a structural perspective?”
While it is impossible to predict the specific challenges you will face, Forsythe identifies five key factors that can assist with successfully navigating legacy planning.
1. Succession and continuity planning
Legacy planning has a much better chance for success if there is a clear roadmap for the future that can adapt or pivot to changing circumstances. Many families, however, do not have a formalized succession plan in place, which makes it difficult to prepare for what is ahead or support the long-term vision. In this context, succession planning involves thinking about who or what team – inside and/or outside of the family – will be responsible for various aspects of managing and stewarding the financial and non-financial assets, says Forsythe.
There are a variety of “enterprise-wide” roles that may need to be transitioned depending on the various “hats” individuals are wearing – it is more than the job descriptions that requires consideration. This might include assembling a team around role transitions for the family business, but it could also mean contingency and continuity planning for a charitable foundation, managing real estate holdings, maintaining staff in charge of managing physical assets, such as a yacht, vehicles or collections, and to run the day-to-day family office. These team members can include insourced and outsourced service providers that may include family and non-family members, family office staff, trusted advisory team members.
In some cases, there may be a “chief emotional officer” who looks after the family’s well-being or a chief learning officer who can help members bridge learning plans to span quantitative (IQ) financial or business skill gaps and qualitative (EQ) human or social skills that can assist with preparation on a number of different levels during the legacy planning process. Often consultants can provide enterprise-wide guidance on creating individual and collective family learning plans.
“For roles, it’s a balance of thinking through who may have interest, the attributes, capabilities, skill sets and mindsets for particular roles and responsibilities, along with mapping out a training, education and mentoring plan,” says Forsythe. “It’s identifying and preparing the future leaders.”
2. Transparent and ongoing communication
Families often struggle with communication on a good day. Having to be open about the many wishes and desires you have for your heirs, the wealth, and any businesses can be difficult. Transparent and respectful communication is key.
It is important to recognize that individual communication styles vary as we are all wired differently and have different lived experiences. This is often an important exercise to create self-awareness for individuals, but also between different generations. We also may have different conflict styles.
Older family members, for instance – particularly the ones who have amassed the wealth – may have a clear vision for the family’s assets and legacy but may not feel comfortable articulating it to others because of a fear or obstacle.
Younger generations, meanwhile, may have expectations that do not align with their parents’ or grandparents’ plans. To avoid misunderstandings, she adds, it is essential to clearly articulate long-term intentions and goals, as legacy plans can unravel when they are not expressed.
Many family offices bring in a third party to facilitate discussions, provide insight into strategies or to recommend specialized resources on how to improve communication among family members. At the same time, discussions are not one-and-done, says Forsythe. While meetings may happen quarterly, annually, or more frequently, regularity is the key as they will likely continue for years or decades to come as the family office continues to evolve and expand with the enterprise and growing family. Some meetings may be informal, others may be very formal depending on the topics.
3. Governance of ownership, enterprise assets and family
If you have a family office, that generally means you have a complex enterprise that can include everything from owning private companies, real estate, investments, art collections and intellectual property. Because each asset category may come with its own advisor and require specific expertise, it is crucial to ensure these specialists work together towards common goals and overall vision. Otherwise, key elements can be missed, including critical legal and tax issues or awareness of a particular family issue that requires attention.
Forsythe cites the example of a family she worked with that had done a significant amount of structural governance with technical advisors and aspects of legacy planning, but still had some gaps. “They didn’t necessarily have a holistic overview of how all their assets worked together, including family,” she says. “Individual advisors weren’t aligned and working together.” In this case, trust accounts and Wills existed, but powers of attorney documents did not. The next generation did not have the same recall of the work they completed as a family or understand how they fit in with what they were all ultimately working towards. This is where engagement and reinforcing key messages over time can be helpful.
To assist with addressing complex multigenerational plans, Forsythe recommends engaging a “global architect” who oversees the big picture to weigh in from an organizational perspective, and assists with education of staff and advisors to manage the mix of complex assets and structures. This coordination – which may potentially span multiple jurisdictions and citizenships – requires an understanding of where family members reside around with world without losing sight of long-term plans that are carefully coordinated and integrated with the overall advisory team.
4. Family discovery and dynamics awareness
Even the best-laid plans can go awry when personal relationships deteriorate. While minor disagreements may be resolved internally through education and practice, serious disputes often require specialists who can assist with deeper communication, conflict resolution and mediation.
“Communication and conflict resolution strategies are integral to create opportunities for families to practice having good conversations,” Forsythe says.
Here’s where confidential interviews with family members can assist, she says, which is something she often does as part of a family enterprise legacy plan. She will talk to people about their perspectives on a number of family, wealth, and legacy aspects and whether they have engaged other consultants or specialists in the past. When asked the question, “what they wish their family was better at,” nine times out of ten it’s communication. She can then help determine what kind of additional support or resources they may wish to engage.
In addition, problems can arise from mental health issues or addictions, in which case she will bring in someone who can help support that specific issue.
5. Philanthropy
Forsythe considers philanthropy a powerful platform for family members who want to be involved in legacy planning. She says, “involving family members in philanthropic decisions can unify the family around shared goals, creating a cohesive vision for the future that goes beyond mere wealth accumulation.”
There is a lot of intellectual learning required in legacy planning. Equally important, and not to be overlooked, is the importance of emotional intelligence too. “When it comes to legacy planning, there is a whole diverse set of skills that you need to learn about. Families must be up to the task of moving from the “me” to “we” and “others.” Philanthropy provides a safe space for families to do this.” Philanthropy allows families to express their values through charitable giving, aligning financial wealth with personal and collective beliefs. This helps to create a legacy that reflects the family’s core values and principles. Further, philanthropic activities provide a platform for the next generation to develop leadership skills, learn about social issues, and understand the broader impact of their financial decisions.
While legacy planning can be complex, incorporating these five key factors into the process can help to shape success. “Every family is going to be a little bit different in terms of the number of topics they want to discuss or are comfortable talking about at one time,” says Forsythe. “You just need to take a thoughtful, intentional approach, as well as setting and managing expectations.” Break it down into bite size chunks and keep the momentum going.
