One of the most challenging experiences that can occur in succession is deciding what a fair allocation is between family members. And, the truth is, 50/50 is often not fair.
Often, effective succession requires a restructuring that was best done some years ago. The corporate structuring of family businesses is normally done around the two pillars of tax minimisation and asset protection. The possible implications on succession are not even considered until that process is underway. This lack of forethought can often create significant capital gains and estate duty costs. It can also lead to heightened levels of family conflict and significant impacts on the enduring capital value of the family business.
A starting point to ensuring you plan ahead for your succession is to establish, what I simply refer to as, ‘wealth allocation principles’.
These are principles, guidelines essentially, which set out how you believe wealth should be allocated between family members when the time comes. They are a starting point which can be readily communicated, at the appropriate time, to family members to create transparency and underpin harmony.
They can also be communicated to your professional advisors who can then consider them in planning your corporate group structure. In family businesses, there will likely be a mix of business assets including various trading, property investment, property development, investment entities — and so the list can continue.
There will also be various other freehold properties, a variety of bonds, equities and cash, and then, what may be described as, private family assets. Put all this together and it means that wealth allocation won’t be as simple as saying, for example, ‘Just split it up equally between everyone.’
Over the next few days, we will consider a range of questions that will allow you to develop your own set of family wealth allocation principles. But let’s start by reaffirming the goal of family business succession which will provide a focus for your forethought and actions.