Wealthy people go to great lengths to pass their fortunes down to the next generation, or pass down their values and legacy. Sometimes they do this with a solid structure—such as a family office.
So here’s a good question: How do you pass down the family office?
As part of the enormous intergenerational transfer of wealth that is expected over the next decade, single-family offices are being transferred, too. It’s happening more and more, as more offices emerge amid a flurry of private wealth creation. That means, besides expensive cars, houses, paintings, trusts, etc., there will also be an increasing number of single-family offices going to heirs to take over and manage.
Inheritors of these offices are for all practical purposes inheriting a family business. Yet many of the children or other heirs have limited, if any, preparation to take over operational control. Some try to be proactive—try to master technical competencies such as money management and system infrastructure, for instance. But those people are in the minority.
And in any case, it’s more beneficial to the family (as well as senior management) to instead master behavior—to set viable goals and objectives for the office, and know how and when to outsource duties. It also means being able to skillfully negotiate. Office inheritors who do these things are better able to achieve what they want.
The Family Business
Single-family offices are, again, in many ways a family business, where the day-to-day operations of the office are often the responsibility of hired talent. And just like any family business, they need good, thoughtful succession plans if the next generation is going to take over and keep the business flowing smoothly with some continuity and few disruptions.
In a survey of 124 senior executives in first-generation, single-family offices, 97.6% of them said they intended to pass the single-family office to heirs.
When the single-family office is expected to go to heirs, there are formal financial succession plans in place. The founders of these offices have usually put structures in place in their estate plans that ensure the transfer of ownership of the offices to heirs.
So younger family members are set to take over. But who is actually taking over? And by that we mean, who is taking over operations?