Don’t “Transfer” Family Wealth; “Transition” It For years now we’ve been hearing about the huge multi-trillion dollar “wealth transfer” that’s occurring thanks to the ageing of baby boomers. There’s no escaping the new realities that this huge demographic shift is causing, but we CAN escape some of the negatives that might accompany it.
When we think about how a family’s wealth should move from one generation to the next, we shouldn’t be thinking about a transfer, we should be thinking about a transition instead.
The most fundamental difference is the time that it takes, from start to finish. When I was a kid, one of my friends moved away because his Dad was transferred. One day he was working in Montreal, then suddenly, he was transferred to Toronto. He finished work on Friday in one place and started up his new job 500 kilometres away on Monday.
When a family’s wealth is transferred as a one-shot event, it can be a real shock to the system, and“shocks” in a family business or family wealth are rarely positive In theory, wealth sounds simple, but in reality, it’s pretty complex.
That’s because ownership of wealth comes with management and leadership considerations. Intergenerational wealth often goes from one individual to a group of siblings, and its management and leadership become even bigger issues. When a group of people owns wealth together, questions about how they’ll manage it, and who’ll take the lead, end up front and center.
If the word “governance” is suddenly coming to mind, congratulations, regular viewers know that this is a favourite topic of mine. Another related concept that doesn’t necessarily get discussed enough authority. With ownership of any asset comes a certain authority, but it always depends on so many details.
There’s explicit authority and implicit authority, and they don’t always go hand in hand. On a macro level, society is certainly witnessing a huge transfer of wealth. But what’s more important to any family is what occurs on a micro level, and families should be concentrating on their own wealth transition. Bottom line, a transfer is an event, just one of many things that need to happen. It’s a tactic.
A transition is a process, it’s the overall strategy required to make the right things happen, in the right way.
Focus on the whole transition, not just the transfer.