At some point in our lives, we are faced with the sobering reality that those we cherish will no longer be with us but may wish to bequeath assets to us, and we ourselves may see a need to plan ahead for a similar outcome to secure the future of our loved ones. Through careful consideration and planning, it is possible to lay the foundations for a smooth handover, ensuring that inheritance received today lasts long beyond tomorrow.
Here are three things to consider:
1) Understand what succession means to you
Incoming inheritance, be it money, property, or a family stamp collection, is likely to have a different meaning for each individual. Some see themselves as the custodians of family assets with a mere function of preserving them for the coming generations. Other heirs see it as their right to enjoy the fruits of their ascendants’ efforts with little or no interest in leaving something for those who come next. Some see inheritance as a blessing; others view it as a burden. Some have always imagined assuming a role in their family business; others wish to pursue new professional avenues and leave the family legacy behind. There is no right or wrong way to view succession; it is a matter of developing a common understanding of succession for the giver and receiver taking values, beliefs, and expectations into account.
2) Plan ahead to avoid surprises
Succession happens even if one does not plan for it. In countries around the globe, governments have implemented standard practices to provide guidance where no estate planning has been undertaken. This means that one’s wealth could end up with an unexpected heir, for example a long-lost relative. So, it makes sense to inform oneself ahead of time and lay out a succession plan that not only meets the needs of one’s heirs, but one’s own expectations and wishes, too. One should strive to eliminate surprises to the greatest possible extent.
An unsuspecting heir who is ill-prepared to inherit money or property may struggle to find their way or meet the expectations of family members. The media is peppered with stories of celebrity heirs or unwitting lottery winners whose initial elation is followed by struggles to manage the newly-acquired wealth. On the other side of the coin, a family member’s or friend’s expectation to inherit may be met with disappointment when nothing materialises.
3) Choose your timing
As the old adage says, timing is everything. From the perspective of the giver, it is important to consider when you would like to bequeath wealth and assets. When passing on a business, for example, it may make sense to involve successors during one’s lifetime to ensure a smooth transfer of knowledge and business network. Similarly, a parent may wish to gift a family property to their child with immediate effect to ensure the child derives the maximum benefit from it. Alternatively, one can explore shared ownership or usufruct agreements where local regulations permit. While considering one’s options, it is of the highest importance for givers to consider how they will balance their own needs with the needs of their heirs. For example, how will they finance their lifestyle or transition into retirement, a particularly relevant concern in the face of increasing life expectancy as a whole around the world.
From the receiver’s perspective, inheriting assets will mean different things at different stages of life. Perhaps the intended heirs have not yet reached adulthood or demonstrated sufficient financial maturity, or are simply not in a position to assume the level of responsibility that wealth and other assets require. Depending on the applicable jurisdiction, common succession vehicles include trusts and foundations, which allow wealth to be passed on in accordance with the giver’s wishes and the receiver’s readiness.
Taking a step in the right direction
In a family setting, the starting point to avoid surprises and tackle blind spots is regular dialogue and constructive discussion. Once the groundwork has been laid, families can engage with succession planning experts who are equipped to set out a clear path for the future. Succession planning is not a one-off exercise, so one’s plan must be reassessed over time to ensure that changes in circumstances are reflected.
Most people spend a lifetime building up their assets, carving out a strong reputation, and preparing to leave a legacy behind just like elite relay racers running their part of the track. Taking the time and effort to ensure a successful handover of the baton is critical to carry on what has been built through years of hard work and passion.