Business owners don't implement succession plans

FWR Staff

19 June 2008

Bank's survey points to plenty of work among biz owners for wealth managers. Most family-business owners -- even very successful ones -- leave themselves open to trouble by failing to make adequate business-succession, asset-protection and estate plans, according to a U.S. Trust-sponsored study that was conducted by Prince & Associates and Campden Research.

"Owners of ultra-high-net-worth family businesses often have a team of advisors focusing on an array of needs such as wealth management, tax strategies and succession planning, without addressing the bigger picture," says Chris Zander, head of U.S. Trust's multifamily office. "Given the near-term and long-term complexities with managing a successful family business, it is crucial that these families think about the wealth tied to their business and their personal fortune in a holistic, strategic manner."

Lack of time, fear of death

The study -- based on a survey of 242 second- and third-generation business owners with interests of at least $300 million and mean value nearing $730 million -- identifies two groups based upon behavioral data. Those who put business over family, and those who put family over business. The study pegs 38% of its survey universe at business-focused. The hallmark of this group is that it gives "little consideration to family financial concerns when making business decisions," according to U.S. Trust.

"Business-focused owners of ultra-high-net-worth businesses tend to be more successful," said Prince & Associates's president Russ Alan Prince. "This segment tends to own businesses with much greater net worth create and implement succession and estate plans in greater numbers than their Family-focused counterparts."

Overall though, ultra-high-net-worth family business owners are fairly poor stewards of their burgeoning legacies -- which may contribute to the old chestnut about some miniscule percentage -- it varies depending of the source -- of family-owned businesses surviving to the their generation.

Three quarters of them have succession plans, but only 38% implement them Most business owners with succession plans don't focus on tax-mitigation issues -- even though nearly all of them say they want to lessen the tax burden associated with transferring the business Nine out of 10 business owners are "very" or "extremely concerned" about protecting the family's wealth, but 73% of them don't have asset-protection plans in place Over three quarters of owners have personal estate plans, but 89% haven't updated them following a life-changing event More than half of participants lacking estate plans say they have a hard time "dealing with their own mortality," and one quarter cite a lack of time as reasons for not creating a plan

"Most family business owners do have basic succession, trust and estate plans; however, too often, they are sitting on shelves gathering dust," says Mindy Rosenthal, head of London-based Campden Research's North American practice. "Not only do these families need to act on implementing and updating their wealth planning strategies, they need more sophisticated strategies to better protect their wealth."

U.S. Trust is part of Charlotte, N.C.-based Bank of America's Private Wealth Management unit.-FWR

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