Build Your Family Bank

A Winning Vision for Multigenerational Wealth

Emily Griffiths-Hamilton

• Publisher: Figure 1 Publishing
• Year: 2014
• ISBN:
  9781927958056
• Topic: Desarrollo personal
• Subtopic: Finanzas personales

With the insights provided by recent research, there's no better time than now to unlock thesecrets behind effective succession and wealthtransition. In this wise and accessible new book, author Emily Griffiths-Hamilton—a leadingexpert in the field—does just that. The path tosuccess, she argues persuasively, is the FamilyBank, a dynamic approach that any family, at anystage in its life cycle, can adopt.As a chartered accountant, an investmentadvisor, a successful business builder, and athird-generation inheritor herself, Griffiths-Hamilton is passionate about helping familiesto achieve successful multigenerational wealthtransition. Yet as she reveals, the failure rate forsuccession plans today is an astounding 70 percent.That, she says, is because the traditionalstarting point for wealth-transition planning—controlling financial assets and minimizing ordeferring taxes—gets the process backwards.The Family Bank approach, by contrast, paysclose attention to the human elements of afamily. Only once those are understood caneffective financial structures be developed tomeet the family's needs.In this book, you'll learn how to create yourown Family Bank, beginning with the solidfoundation of your family's shared values andvision. Griffiths-Hamilton explains how youcan assess all of your family's assets—human, intellectual, and financial—and prepare succeedinggenerations to steward those assetssuccessfully. As you implement the stages shesets out, you'll be crafting a succession andwealth-transition plan that truly meets theneeds of your family. The benefits of building aFamily Bank, as this book clearly shows, will gofar beyond any financial gifts you may leave toyour successors.

1. Why Succession Plans Fail

I read somewhere recently that the average entrepreneur spends approximately eighty thousand hours building their business or career and then only eight to ten hours on succession planning. That statement stopped me in my tracks. Could it be true? I wondered. From my very rough calculations, based on a forty-year career and a forty-hour work week, needing eighty thousand hours to build a successful business or career seems, if anything, on the low side—and many people work more than forty hours per week. Yet I also know firsthand that the eight to ten hours estimated for the time spent on succession and wealth-transition planning may well be high!

Many families, especially those with no lawyers, accountants, or financial planners in their ranks, turn their attention to personal financial matters mainly when tax season is upon them. During the consultation for their year-end tax filings, the family’s accountant will quite rightly inquire if the family’s will and estate plans are up to date. If this question hits a family at a pivotal point in their history, it may spur them into action. If not, they may have good intentions to deal with the issues at hand but let the matter slip for yet another year.

Here’s what happened to one family I work with. As a result of proactive nudging by their accountant and personal discussions with business associates of the same age while in their forties, the parents in this family began attending free seminars on succession and wealth transition. They were in their early sixties by the time they came to consult with me. At the start of our second meeting, the father presented me with a bulging reusable grocery bag. For a fleeting moment I was excited, thinking the bag contained treats of some kind—maybe wine. I had to keep my oversized, goofy smile in check when I realized the bag contained documents of some sort. Noticing my facial expression, the father gave a hearty laugh. “I thought you might be interested in this stuff,” he said. I continued to smile politely, but no doubt my face resembled a giant question mark. My client continued: “We’ve attended ‘free and not so free’ succession and wealth-transition planning seminars for the last twenty years. This bag contains all the junk we were given to take home.”

I was genuine in thanking my client for his thoughtfulness. Luckily, I am one of the few people who would almost prefer a historical collection of estate-planning brochures to a special bottle of wine. I took the bag home and spent the weekend reading every item. It was an eye-opening experience for me.

Even though I am usually utterly riveted by the subject matter, reading that shopping bag full of information was difficult. According to the literature from those seminars, succession planning was a very complicated chore. The seminar presenters were mostly accountants, lawyers, or financial planners, and their advice veered towards elaborate corporate restructuring, highly complex tax strategies, and questionable financial projections, with the advice frequently accompanied by product-pushing, like selling insurance and investment products. Reading from the perspective of an individual considering succession planning, the conclusion was inevitable. I would have to take precious time away from my beloved family and career to do this planning, along with paying significant fees to professionals spouting elaborate mumbo jumbo. No wonder so many people throw in the towel, and just ignore the issue!

Was it any different for families at the other end of the spectrum? I asked myself—those who have family members with professional expertise in the subject? My family of origin was an excellent example. My father, a man who shunned the limelight, attracted media attention like a honeypot attracts bees. In most instances, to be fair, our national media did a good job of capturing his business acumen, his reserved nature, and his genuine concern for his community and family. My father began in business working alongside his own father as a chartered accountant (CA) in public practice. My father went on to have a thriving career as a CA until his retirement from the profession at fifty-eight years of age. By all accounts, he was brilliant with numbers and concepts, and thorough and thoughtful in his approach to every business detail.

My father was also a visionary leader, a man born ahead of his time. He was a pioneer, focusing his entrepreneurial efforts primarily on media and sport organizations at a time when that was uncommon. At the time of his death in 1994 at the age of seventy-eight, he held the controlling interest in the media conglomerate he had built, Western International Communications (WIC), a publicly traded Canadian company. The broadcasting empire included key radio and television stations across Canada and a controlling shareholder interest in Canadian Satellite Communications (Cancom) and Allarcom Pay Television Limited (owners of Super Channel in western Canada), as well as holdings in Family Channel, Studio Post and Transfer, Home Theatre, and Cellular Vision. However, the acquisition that landed my family most firmly in the media’s bull’s-eye was my father’s 1974 purchase of the controlling interest in the Vancouver Canucks of the National Hockey League (NHL). His remarkable accomplishments as both a business leader and a philanthropic leader were recognized with many awards, including inductions into the Canadian Business Hall of Fame, the Hockey Hall of Fame, and the Canadian Association of Broadcasters Hall of Fame.

While I am exceptionally proud of my father, I did not write that last paragraph solely to brag about him. The point I want to make here is that his business success owed nothing to chance. And despite media claims to the contrary, this very successful businessman, knowing he was ill, drew on his professional skill set, which included deep knowledge of the tax code and of corporate structures, to put in place a comprehensive, technically crafted succession plan using the tools available to his generation. After creating a highly complex family corporate structure, the balance of attention was focused on the succession of the family businesses. In the end, though, the succession failed and the family lost control of the broadcasting operations, not entirely because of the structures my father put in place, but in spite of them. Sadly, we are still using those same approaches and structures today and, not surprisingly, they are producing the same disappointing results.

As I noted in my introduction to this book, the failure rate for succession and wealth-transition plans is an astounding 70 percent in each generation. This means that if ten first-generation families execute succession plans, only one of those families will remain in control of the family’s assets by the third generation. Here’s how it works:

First-generation transition:

Therefore,

Second-generation transition:

Therefore,

Third-generation transition:

And not only that, but this failure rate has been consistent over thousands of years of recorded history, giving rise to the age-old proverb “shirtsleeves to shirtsleeves in three generations.”

It is important to recognize that this is not a uniquely North American dilemma. Variations of this proverb are remarkably consistent across cultures. Some examples from around the globe include “rags to rags,” “clogs to clogs,” “barn stall to barn stall,” and “rice paddy to rice paddy” in three generations. Whether estate plans are created in countries with the lowest possible tax rates or in those with the highest rates, in old world cultures or in newer ones, they are equally likely to fail. In other words, even when paying one’s share of taxes in countries that support substantive social safety nets, or in countries with or without estate and inheritance taxes, succession and wealth transitions fail at the same rate.

So, do we have a problem here? The answer is most assuredly yes! Of course, it is difficult to solve a problem without knowing what causes it. Well, I have great news. Business scholars and economists are profoundly aware of the positive financial impact the baby boom generation and their family businesses have had on many economies. However, they are equally concerned about the potential negative impact on these economies if the pattern continues and 70 percent of the succession plans for these family businesses fail. For that reason, lots of energy has been expended trying to discover why this pattern of loss has been so tenacious. Over the past decade or so, their research has yielded some key insights.

Enter authors Roy Williams and Vic Preisser and their 2003 book Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Although Williams had spent over forty years coaching business families around the world, and Preisser had more than thirty-five years of experience in business, government, and education, the two men detected a common thread in their estate and financial planning work. Through observing families over multiple generations, they discovered that the traditionally recommended legal, accounting, and financial succession planning structures were not, on their own, able to abate the “shirtsleeves to shirtsleeves in three generations” scenario.

Through their company, The Williams Group, Williams and Preisser performed specific research in this area. To come up with a relevant sample for their interviews, Williams approached fellow members of The Executive Committee International (TEC), a global organization in which business owners in non-competing businesses gather in smaller groups to learn from one another and from invited guest speakers. Through Williams’s association with TEC, The Williams Group facilitated 3,250 candid and confidential conversations with family business owners at different points in their succession plans.

Through these conversations, Williams and Preisser were able to define what constitutes a failed succession plan. According to their definition, a succession plan is considered to have failed if the next generation involuntarily loses control of the transitioned assets. To clarify, they noted that if a family business is sold and the financial assets are voluntarily redeployed into the financial markets, this is considered a reformatting of those assets, not a failed succession plan. Similarly, if the transitioned financial assets are used for philanthropic purposes, this is considered a voluntary redistribution of those assets. In the words of Williams and Preisser, involuntary losses occur when beneficiaries lose control of their wealth through “foolish expenditures, bad investments, mismanagement, inattention, incompetence, family feuding, or other causes within their control.” Ouch!

You might now be thinking, “Enough already, please tell me why it is that 70 percent of the time the next generation involuntarily loses control of the transitioned assets, despite us spending significant time and money with professionals creating a succession plan!” This is where things get really interesting. According to data drawn from The Williams Group’s interviews, it was found that “the origins of the 70% failure rate lie within the family itself.” Four specific causes were identified, and assigned percentages according to how often they were cited:

60% Breakdown in communication and trust within the family unit

25% Unprepared heirs

12% Lack of mission

3% Failures of professionals

And to truly understand their findings, and what these percentages mean, we need to examine the four causes more closely.

1. Breakdown in Communication and Trust Within the Family Unit

When I outline in conversation the primary reasons why succession plans fail, I almost always leave off the part about “...and trust” from “breakdown in communication.” This is because I believe trust is implicitly required in order to effectively communicate with anyone, not just family members. To me, there is no ambiguity here. If I am in a conversation with someone who I do not trust, then I will not believe what he or she is saying. The message sender may think they have delivered a clear message but, in my mind, I have disregarded it.

Families can be complicated, though, and having genuine trust within a family is paramount in order to have effective communication. Arguably, we cannot expect to have effective communication or harmony within a family without trust. Trust, as defined in the Oxford English Dictionary, is a “firm belief in the reliability, truth, ability, or strength of someone or something.” Nice words, but what does trust look like in a family? Well, it is represented by simple acts among family members, like saying what you are going to do and then doing it, having one’s actions mirror one’s words, seeking to support rather than sabotage other family members, and keeping private family matters private. While families must be honest internally, among family members, being honest with individuals outside the family about anything less than favorable to do with another family member is a very quick way to erode trust with that individual. For instance, when my family lost control of our media operations, the national press certainly paid rapt attention when private family matters were inadvertently not kept private.

Communication itself is a complex subject area, with a minefield of opportunities for explosions. One would perhaps assume that since a significant portion of my maiden family’s business was concentrated in the communications industry, we would have had a strong grip on this subject area. But in fact, one business associate close to our family and our business operations commented in jest, “Your maiden family’s motto could have been: ‘Communications: We sell it! We don’t practice it!’” “Indeed,” I replied with a polite smile, thinking, “We are not that different from many other families.”

Even when you are doing your best to say what you mean, there are still many opportunities for communication to easily break down, such as when a message being delivered is misheard, misunderstood, or misinterpreted by the receiver. For example, recently a business partner of mine, the message sender, had arranged a lunch meeting with one of our business associates, the message receiver. In a shared moment of jocularity, the message sender said to the message receiver something about bringing their Platinum Card. The receiver misinterpreted the message and grabbed a cab to a less-than-de...

Table of contents

• Cover
• Title
• Dedication
• Contents
• Epigraph
• Introduction
• 1. Why Succession Plans Fail
• 2. Family Bank Basics
• 3. Your Family’s Shared Values
• 4. Your Family’s Shared Vision Statement
• 5. Your Family’s Human and Intellectual Assets
• 6. Assessing Your Family’s Financial Assets
• 7. A Common Hot Button
• 8. Trusts:
• 9. Philanthropy
• 10. Family Bank Governance
• 11. A Template for Implementing the Family Bank
• 12. Selecting Family Bank Advisors
• Conclusion
• Bibliography
• Acknowledgments
• Index
• Copyright