So it’s not surprising that 45 percent of wealth management firms now offer estate and succession planning as primary services, up from 37 percent just a year ago, according to Cerulli Associates. The data provider estimated that demand for these capabilities will continue to snowball: Over the next 25 years, $68 trillion of wealth will be transferred in the U.S. alone.
Most major banks now advertise “family office” and planning services for clients with more than $25 million in investable assets. Some offer perks for the super-privileged: Wells Fargo & Co.’s family office group has a historian to document family legacies, while Citigroup Inc. and Deutsche Bank AG boast summits that teach heirs how to invest in Silicon Valley.
Longevity can be critical to the growth and long-term success of such family business interests, said Jonathan Flack, who leads PricewaterhouseCoopers’s U.S. Family Business unit. In earlier eras, longer lifespans were driven by declining child mortality. In the past 50 years, the driver has been older people living longer. Men in the top one-fifth of America by income born in 1960 can on average expect to reach almost 89, seven years more than their equally wealthy brethren born in 1930. (Life expectancy for men in the bottom wealth quintile remained roughly stable at 76.)
John Davis, founder of Cambridge Family Enterprise Group, said advising clients on how to successfully hand off power increasingly requires finding them a life beyond their business interests, given how long the rich are living. Davis, who teaches at the Massachusetts Institute of Technology’s Sloan School of Management, said he started paying more attention to the challenges raised by longevity about 15 years ago, when he realized several clients had three generations of adults involved in the family business. “The oldest generation was still around,” he said, “and not just still around, but still active and still wanting a role.” That could be a recipe for disaster.
“Stepping into the shadows is something that older people don’t want to do. It’s kind of scary,” said Davis, who has made a career of advising ultra-rich families on how to transfer wealth. Data reflect this hesitancy: Just 18 percent of family businesses in the U.S. said they have a robust succession plan, according to a 2019 survey from PwC.
Flack tells clients that early planning can allow for a more efficient transfer: for example, asset owners who assign shares of a company to a trust earlier, at a lesser valuation, can avoid some taxes if the business appreciates. But Glasgow warns that such concerns must be balanced with the possibility that children or trustees might “jump the gun” to have them declared mentally incapacitated.
“The state of diminished capacity isn’t going to be a bright line,” she explained, given the vagaries of such diseases as dementia or Alzheimer’s.
In the past, an aging tycoon may have relied on a trustee or family friend to make the call. Nowadays, the rich are planning for the possibility of a slow decline, making use of vehicles to transfer wealth or fund philanthropy while keeping control longer. And for protection, Glasgow said, the rich are introducing clauses in wills that require heirs to produce two, or even three, doctors who agree they are unfit to administer their own estate. One client stipulated that only a court could determine whether he was mentally incapacitated, she said.
“If you start early enough and do it long enough, you can move a lot of money without estate tax.”
Then there are the taxes—or, more specifically, minimizing them. Take the dynasty trust, an increasingly popular structure designed to move large amounts of money into a long-term vehicle that can pay future generations while limiting estate and generation-skipping taxes. Such vehicles allow the wealthy to pass chunks of their businesses to descendants tax-free, provided they fall under gift-tax exemptions—currently $22 million for a couple.