The art of transitioning wealth

How to successfully leave assets to the next generation

The psychology of wealth is emerging as a distinct area of academic study and research. With aging baby boomers, and the trillion-dollar wealth transfer that is now beginning to take place, we need to know more about wealth, how it impacts families, and how to successfully transition wealth.

The reality is that most of those who have wealth are new to it. It has been estimated that of wealth holders, 75%-85% are self-made and only 10%-15% are inheritors.*

One of the biggest challenges families face is successfully transitioning their wealth so it benefits their family members and is an advantage to them, and does not harm or even destroy them. Whether it be a large business empire or, on a smaller scale, the family cottage, many of the underlying issues in transferring wealth can be the same, notwithstanding how many zeros there are, often centering on power and control. Witness the recent events involving the Stronach family (of Magna International Inc. fame), which has catapulted into the headlines and grabbed media attention, another Canadian business family in turmoil that joins the ranks of a growing list over the last two to three decades.

Why do some families succeed and why do some fail in their efforts to transition their wealth? No doubt, the pressures and strains of passing down wealth can bring to the fore many underlying issues and tensions, creating conflict.

Many families lack any context or framework of reference to help them on what has been termed the “journey up” by psychologists James Grubman and Dennis Jaffe – the fundamental transition in economic culture families experience as they emerge from economic adversity and migrate upwards to wealth, success, and affluence. They use the terms “Immigrants” and “Natives” to differentiate between those who have made the wealth, and those who are born to it.

Immigrants to wealth share many of the characteristics of geographic immigrants: entrepreneurial; hard-working; self-sufficient; independent; and strong-minded. Subsequent generations, who are the natives to wealth, and whose life experience is very different, know security and comfort rather than insecurity and scarcity. Jaffe and Grubman assert many in the second, third, and later generations lack certain life skills as a result of being insulated from responsibility, which may leave them unprepared to manage life and deal with adversity.**

The body of literature on the psychology of wealth and wealth succession will no doubt grow in leaps and bounds with demographic change and the global transfer of wealth. It is an area of knowledge that all families can benefit from to give them insight, perspective, and understanding in successfully navigating these challenges.

If the transfer of wealth challenge is something you’re facing, a few recent books that you may find of interest to add to your summer reading list include: The Destructive Power of Family Wealth: A Guide to Succession Planning by Philip Marcovici (Wiley), Wealth of Wisdom – The Top 50 Questions Wealthy Families Ask edited by Tom McCullough and Keith Whitaker (Wiley), and Cross Cultures – How Global Families Negotiate Change Across Generations (Family Wealth Consulting). Each of these works offer sage advice, experience, and wisdom, but are also highly interesting and engaging reads.

* Dennis T. Jaffe and James Grubman, Cross Cultures (2016), Family Wealth Consulting, p.63
* Supra, p. 64-65

Margaret O’Sullivan is the principal of the Toronto-based trusts and estates law firm O’Sullivan Estate Lawyers. She practices exclusively in the areas of estate planning, estate litigation, advising executors, trustees and beneficiaries, and administration of trusts and estates. This article originally appeared in the O’Sullivan Estate Lawyers blog. Reprinted with permission.

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