Succession Planning: Four Steps

“Succession planning is the best way to ensure that our children become responsible stewards of our wealth”

Succession planning isn’t always cut and paste. There are many things to take into consideration when thinking about planning your succession. Succession planning is not easy, and isn’t always a comfortable topic. To illustrate the point, we often use the Vanderbilt family as an example.

Cornelius Vanderbilt’s railroad empire ranked among the top three fortunes in American history. Adjusted for inflation, it was a staggering $200 billion. At the 1973 Vanderbilt family reunion, however, not one of the 120 Vanderbilt descendants present was a millionaire.

There is no secret recipe for good succession planning – each situation is a little different and requires careful planning. For some people, full succession will never be possible and a professional trustee with discretion over bequeathed assets will be necessary. However, those who plan to have their children oversee their estate must, at a minimum, employ the following 4 STEPs to ensure smooth succession:

1. Specifying: The first step starts with you. Specify what you want to accomplish and how you want to get there in a detailed investment plan. It is much easier for a new generation to work from an existing blueprint than to start with a blank slate (even if they change the plan later). ‍
2. Teaching: Many individuals lack the basic information to be responsible for inherited wealth. It may take a few years to create the building blocks of an investing foundation, so it is better to start early – before inheritance takes place. ‍
3. Empowering: One day, your children will need to make investment decisions without you. It is better to start their autonomy, even in a limited way, while they can benefit from your guidance and support. Many of the best investors were given the freedom to make errors when the stakes were lower. ‍
4. Principles & Values: Great succession goes beyond accumulating wealth for its own sake. Whereas some children are motivated by financial gain, others may be motivated by supporting social causes and philanthropy. An investment plan centered on principles and values will be much more resilient than one based exclusively on financial goals.

There is obviously a lot more consideration that needs to take place in succession planning, but following these four STEPs will give you and your children the foundation for a successful future. The biggest consideration to make is to have continuous communication with one another so that everyone understands exactly what the plan is.