Handing On Wealth To The Next Generation: Part 2: Succession Planning

The right advice can help you formulate a succession plan that satisfies every member of your family.

While no one wants to face up to their own mortality, the heads of wealthy families must make detailed plans for the handing over of control to the next generation or risk causing severe difficulties for their children and grandchildren. More problems are created, and tax bills incurred, by too little planning rather than too much, says Dani Glover, personal financial planning director at Smith & Williamson. "It's much better to tackle succession issues during the key person's lifetime, to spare emotional and possible legal costs later on," she says.

It is sensible to opt for a belt and braces approach, the first part of which is to maintain an up-to-date Will, setting out what will happen in the event of an unexpected death. However, most parents do not want to continue in harness until they drop - they want a phased succession strategy that will see their children take on responsibility for the estate or family business while they themselves enjoy a comfortable retirement.

Planning should begin in earnest in your mid 60s, when typically children are reaching their 40s. The central question is deciding who you want to take over primary responsibility. Where there is a title involved, there is no choice about who inherits it, but wealth and title can be separated if the eldest son proves unsuitable to manage the family's financial affairs. "When characters are developing and you still don't know what kind of relationships your children will form, it's probably best to keep your options open," advises Rohan Armes, investment partner at Smith & Williamson. "Once someone is safely earning, perhaps has had their own children, and has shown themselves to be a worthy custodian, you can begin to make a final decision."

Even though one person - not necessarily a son, these days - is likely to assume overall responsibility, parents will want to find meaningful roles for their other children to prevent squabbles. If you are an entrepreneur, you can follow Rupert Murdoch's example and allocate portions of the business according to your children's skills and interests.

Most people don't want to take a back seat until quite late in life, especially if they made the money themselves. There should, however, be a period of co-ownership to keep children engaged. If this doesn't happen there is a risk they will go off and do their own thing...