Transferring Assets to the People You Love
Updated on August 18th, 2020 | By Anthony Glomski 
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The world is in flux—politically, socially, and economically. Depending on what happens in the future, massive change could destroy the enormous opportunity you have to get your money to the kids and future generations. This article goes into some of the strategies and tactics you might consider to ensure a successful transfer.
Key Takeaways:
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The affluent aren’t immune to making estate planning mistakes.
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You have to be thinking about eventual wealth transfer now—before it happens—so you can craft a plan.
- Comprehensive planning and up-to-date transfer plans are important.
For many affluent families, the issue of effectively transferring assets from matriarchs and patriarchs to kids and grandkids is a key part of their wealth planning efforts.
Those assets might come in the form of stocks and other marketable securities as well as family businesses. Regardless, many affluent families want to pass on their wealth in ways that meet their wishes and result in as light a tax burden as possible.
If you’re wondering how you can best prepare to pass down your assets or are curious if the plan you currently have in place will be effective, AG Asset Advisory can help. Contact us to get started.
In the meantime, there are some things we can learn from the Super Rich (individuals with at least $500 million in net worth). Let’s examine how they “pass the baton” when it comes to one very specific aspect of their wealth—single-family offices, which are entities established and run to address the financial and lifestyle concerns of extremely wealthy families.
Generational Involvement:
As with a family business or a sizable portfolio of assets, an often-critical consideration for many of the Super Rich families is transferring their single-family office and their affluence to succeeding generations.
To compare the generations, a sample of first- and second-generation single-family offices was developed (see Exhibit 7). Slightly more than 60 percent of the single-family offices are controlled by the creating (first) generation, with the rest controlled by the second generation, who inherited the single-family offices from the original creators.
To compare the generations, a sample of first- and second-generation single-family offices was developed (see Exhibit 7). Slightly more than 60 percent of the single-family offices are controlled by the creating (first) generation, with the rest controlled by the second generation, who inherited the single-family offices from the original creators.
Among single-family offices, it is common for the wealthy families to have considerable oversight. That oversight may involve setting broad strategy and making key decisions as well as addressing the acquisition and compensation of talent (such as senior management, dedicated investment professionals, and other key personnel).
That said, there’s a clear distinction between the first and second generations with respect to who is responsible for the day-to-day operations of single-family offices (see Exhibit 8). Overall, nearly one in five wealthy family members is a senior executive within their single-family office. But note: This is true for just over 10 percent of the family offices controlled by first-generation family members. In stark contrast, nearly 30 percent of wealthy family members in the second-generation-controlled family offices are senior executives.
Exhibit 8
Family Members Are Senior Executives
- First Generation: 11.3%
- Second Generation: 29.3%
- Weighted Average: 18.1%
Source: Family Office Assocation, 2018. N = 199 single-family office senior executives.
Why? In our experience, we see that the first generation creates single-family offices to address financial and lifestyle concerns but generally turns to outside professionals to manage the offices. Many of the first generation still have operating businesses to run, and those companies are usually the source of their fortunes. Alternatively, they may prefer to involve themselves in charitable or personal pursuits.
However, for many inheritors, the single-family office is their family business. They are much less likely to be involved in other family business ventures, and more likely to gravitate toward running the single-family office.
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Transferring Assets:
Overall, nearly nine out of ten of the surveyed single-family office senior executives anticipate handing the reins over to the next generation at some point (see Exhibit 9). Close to 100 percent of the family senior executives at first-generation offices expect to do so—versus 70 percent of those at second-generation-controlled single-family offices.
Exhibit 9
Plan on Transfering the Single-Family Office to the Next Generation
- First Generation: 97.6%
- Second Generation: 70.7%
- Weighted Average: 87.4%
Source: Family Office Assocation, 2018. N = 199 single-family office senior executives.
Passing Assets Down: Are the Affluent Planning Well?
There are generally two major considerations when transferring control and ownership of the single-family office to the next generation: financial and operational. The former addresses ownership concerns in the context of taxes, legal control, and related issues. The latter deals with matters such as management structure and ensuring that proper expertise needed to run the single-family office is in place.
Having a formal financial succession plan in place is characteristic of nearly all the single-family offices (see Exhibit 10). Very often, financial succession plans are interlaced with (or subsumed by) broader family estate plans. That said, ownership and control may still be transferred incrementally over time while everyone involved is still alive.
Exhibit 10
Formal Financial Succession Plan in Place
- First Generation: 97.5%
- Second Generation: 98.1%
- Weighted Average: 97.7%
Source: Family Office Assocation, 2018. N = 199 single-family office senior executives.
Caution: While it’s good news that so many formal financial succession plans are in place, it’s possible that those plans are not structured to deliver the results that the families want and expect to see. Existing succession plans can be—and often are, in our experience—outdated due to changes in family circumstances, laws and regulations, and other factors.
But while formal financial succession plans have largely been addressed, the same cannot be said for formal operational succession plans (see Exhibit 11). Note that just over half of the first-generation single-family offices have such plans in place—and a mere 7.5 percent of the second generation are prepared in this way. In aggregate, just around 40 percent have taken action here.
Exhibit 11
Formal Operational Succession Plan in Place
- First Generation: 55.4%
- Second Generation: 7.5%
- Weighted Average: 40.8%
Source: Family Office Assocation, 2018. N = 199 single-family office senior executives.
This lack of comprehensive succession planning may explain why a mere 13.3 percent of second-generation family members said they felt prepared when they took control of their family’s single-family office.
“Only 13.3% of second-generation family members said they felt prepared when they took control of their family’s single-family office.”
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Lessons to Learn:
Clearly, even the Super Rich (those with $500 million or more) can improve on their asset transfer and succession efforts. When we examine how they have—and have not—planned for the transfer of assets to their heirs, we can see a few important lessons that all of us should review and consider in our own lives:
1. Have the right intention. Before you can set out to create an effective asset transfer plan, you need to be thinking about it from a broad perspective. In other words, the issue needs to be “on your radar screen.” The vast majority of the Super Rich who are executives at their single-family offices are intending to transfer assets to heirs—you should be considering that option too.
2. Plan comprehensively. Estate plans and other types of asset transfer strategies should take into account the whole picture—your needs, wants, concerns, and issues that you probably don’t even realize are issues! If your plan to pass on wealth is not set up properly—or if it covers only some of the details that need to be addressed—you could put the wealth you’ve built at risk.
The fact that the Super Rich with single-family offices may be overlooking important issues suggests that even the wealthiest (and seemingly savviest) families don’t always have their ducks in a row. Be sure you’re tackling wealth transfer from all angles!
If you have yet to start planning or are unsure if your plan to transfer assets will deliver the intended results, we can help. Contact us at AG Asset Advisory to get the conversation started and ensure you aren’t missing any important opportunities.
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Meet Anthony
Anthony Glomski is the founder of AG Asset Advisory, an internationally recognized SEC-registered Family Office. His team works extensively with entrepreneurs so they don’t miss out on any potential opportunities and they get the results they want. This collaborative process addresses an array of family, financial, and lifestyle concerns along with coordination and oversight of various professionals to keep everyone focused tightly on their goals.
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Meet Anthony
Anthony Glomski is the founder of AG Asset Advisory, an SEC-registered Family Office. His team works extensively with successful entrepreneurs so they don’t miss out on any potential opportunities and get the results they want. This collaborative process addresses an array of family, financial, and lifestyle concerns along with coordination and oversight of various professionals to keep everyone focused tightly on their goals.