Don’t “Transfer” Family Wealth; “Transition” It

For years now we’ve been hearing about the huge multi-trillion dollar “wealth transfer” that’s occurring thanks to the demographics of the Western world.

As baby boomers age, there’s no escaping the new realities that this huge demographic shift is causing.  But hopefully, we can escape some of the negatives that might accompany it.

I believe that when we think about how a family’s wealth should move from one generation to the next, we shouldn’t be thinking about a transfer, we should be thinking about a transition instead.

 

 

Is It Just Semantics?

I’ll leave it to interested readers to Google these words in an attempt to parse all of their differences, and will instead concentrate on some simple and observable comparisons and contrasts.

The most fundamental aspect to consider is the time that something takes, from start to finish.

When I was a kid, one of my friends moved away because his Dad was transferred.  One day he was working in Montreal, then suddenly, he was transferred to Toronto.

He finished work on Friday in one place and started up his new job 500 kilometres away on Monday.

 

Wire The Funds

If you’ve ever wired funds somewhere you know that one day the money is in your account, and then the next it is not.

Somewhere during the day (usually at around 2 PM for some reason) the funds instantaneously go from one account to another.

They have been transferred. Boom.  Here one minute, gone the next. A single event has happened and is now complete.

When a family’s wealth, including the financial wealth and everything that comes with it, is transferred as a one-shot event, it can be a real shock to the system.

The word “shock” is rarely used as a positive in the area of family business or family wealth.

 

Arrow on wall

 

Slower, Smoother Transition

So what do I mean when I say “everything that comes with it”?

I actually wrote about a few of these details back in 2015, in Transition Planning: No Day at the Beach.

In that blog, I wrote about the transitions of management, leadership, and ownership.

Strictly speaking, a transfer typically deals with the ownership of the wealth.  When someone suddenly owns something, they are then usually expected to also manage it as well.

 

Ownership Is the Big One

One of the problems that can arise with intergenerational wealth is that the ownership sometimes goes from one individual to a group, who are often siblings.

This is where the questions surrounding management and leadership come in.

When more than one person now owns the wealth, how they will manage it, and who will take the lead are also questions that get put on the table.

If the word “governance” is suddenly coming to mind, congratulations, because that’s certainly where my mind is heading too.

 

Respect My Authority

Another related concept that doesn’t necessarily get discussed enough is that of authority.

With ownership of any asset comes certain authority, but it can depend on so many details.

And when you talk about authority, there is of course explicit authority and implicit authority, which do not always go hand in hand.  (Note to self: there’s a whole blog right there!)

Numbers and pie charts

Interdependent Wealth

The distinction between transfer and transition came up for me recently as I continue to make progress on my next book.

My working title is “Interdependent Wealth”, with a secondary title as follows:

How Family Systems Theory Illuminates Successful Intergenerational Wealth Transitions

That’s nine words in a secondary title, which feels like a lot, but I can assure you that a great deal of thought went into each and every choice that I made, right down to the final one, Transitions.

 

A Gradual Handover

It was during the choices I was making about these words that the whole transfer thing really hit me.

On a macro level, society is certainly witnessing a huge transfer of wealth.

But what’s more important to any family is what occurs on a micro level, and families should be concentrating on their wealth transition.

 

Event Versus Process

Bottom line, a transfer is more of an event, or one of many components or things that need to happen.  It is a tactic.

A transition is a process, it is the overall strategy required to make the right things happen, in the right way.

Focus on the whole transition, not just the transfer.