There’s a saying that goes: “The first generation makes it, the second generation spends it, and the third generation blows it.”
Wealth is a fleeting thing, especially when people don’t know how to take care of it. According to one of the studies on the wealthiest people, about 70 percent of them will lose their fortune once their children handle it.
By the time it’s the grandchildren’s turn, more than 85 percent of the group will no longer be wealthy.
Here’s the Problem
Families can lose the money they worked hard for, for a variety of reasons. It could include a significant change in the economy. New policies such as taxes may reduce the business cash flow. In other cases, it’s a new market.
Think Blackberry, for example. It died when it failed to compete with the revolutionary smartphones. But according to Michael Cole, who authors More Than Money, most are due to poor succession planning.
Succession Planning Is Key
How can succession planning help in keeping the wealth? In Utah, there’s no state inheritance or estate tax, but there’s probate. It can be lengthy and costly. It is also a complicated process for the heirs. One may be able to avoid it by working with firms such as mdfestateplanning.com, who can design a good trust plan.
The trust may also protect the business assets once the business owner dies from the creditors or partners who also have an interest in the money.
For the Future of the Family
More than anything, however, succession planning provides the future family members the skills necessary to allow the business to thrive. They learn not only how to handle money but also how the company earns. An in-depth knowledge will help them realize cash doesn’t grow on trees.
It also promotes cohesion within the organization. Over 55 percent of the owners lose their wealth due to the lack of trust and communication.
In the end, it’s up to the families whether they want to continue their business. They always have the option to give it to the partners or sell it. Regardless of the decision, succession planning is essential to provide the children with an equal chance to own and run it successfully.