The Step by Step of Creating a Succession Plan

Whether you have multi-generational family assets or live on a government pension, creating a strong succession plan ensures the long term stability of your family. 

Regardless of the value or number of your assets, there are universal steps that everyone needs to take to create a sustainable plan that enables wealth to be preserved and repurposed  throughout the generations.

Know What You Own; Know What You Owe

While you may know about everything you own, don’t assume your family will be able to find the bearer bonds that live at the bottom of your drawer. It’s important to carefully work out exactly what you own and what you owe, and doing so requires more than just creating an Assets and Liabilities list. 

By creating not only a list, but a clear plan for what happens to your assets, you can assess how you can distribute your wealth in a way that best ensures stability. Importantly, your plan will provide your executor and beneficiaries with all the information they need. This includes a clear outline of your desires and wishes, as well as where to find your assets and liabilities.

By keeping all your updated documentation in a secure location, you ensure your family will have access to vital information when they need it. You could also take time to write a note to family members as your final words of love to them.  

Scott Pape, Australia’s “Barefoot Investor”, suggests that something as simple as a ring-binder stored in an inexpensive portable waterproof fire-safe (available at most hardware stores), is a good place to start. For a relatively simple succession plan, this might be all you need. For families with multi-generational wealth in different forms and locations, this only is a starting point, but a vital one. 

 1.1) Stocktaking Your Assets and Liabilities

In that ring binder, you will put together a list of all your assets and liabilities. This process may be the most time-consuming aspect, as people generally have more scattered assets and liabilities than they realize. 

Your list should include vital information, such as:

Asset Type	Savings Account	Store Card
Location	HSBC	Macy’s
Account Number	123-456789-111
User Name	Mr J. Wong
Password	–
Contact	Ms J. Smith (Manager) 03457 404 404
Value	$15,500,000	$5,000
Notes

Create a List of All Your Assets

The family home, businesses, vehicles, and bank accounts are standard assets. But what about insurance policies, art collections, or your digital assets? 

List all your digital accounts and include access details, such as usernames and passwords (obviously this will be a document that is kept securely). 

Some of the assets that you might include are:

• House(s)
• Investments (including bearer bonds, Bitcoin, and other harder to trace investments)
• Bank accounts
• Insurance policies
• Pensions
• Businesses
• Personal property (cars, jewellery, art)
• Online transacting accounts (such as PayPal or eBay)
• Website and email hosting
• Cryptocurrency

Create a List of All Your Liabilities

Again, the standard liabilities such as mortgages on your home, holiday house, or business loans will be obvious. However, credit card and store card debt are often forgotten. Even if your balance is paid off completely every month, this still should be listed as a liability (or canceled). 

Are there loans associated with education, business, or vehicles? Do you have personal obligations such as child support or student loans? These should all be listed as liabilities. If the debt will ‘die with you’, make a note of that also. 

1.2) Where Are Your Assets and Liabilities Found?

In your inventory list, make sure it is clear where necessary documents are to be found. This will include signed wills, contracts, agreements, policies, funeral arrangements, lawyer’s details, trust documents, and birth/marriage certificates.

Try to keep all important documentation — or at least a certified copy — in one secure location, such as with your lawyer. 

You will also need to ensure that the ownership structure of any assets is identified,to plan a path of clear succession. A clear ownership structure will also allow for tax planning and restructuring if needed. 

A miser was on his deathbed and told his only son:

– Isaac, my son, I am dying. I just want you to know that the 8 houses, 3 apartment buildings, 24 taxis, 17 hotels, 8 shops, 3 swimming pools, the statues, jewelry…

– Are you going to give them to me, dad?

– I’m selling them to you. Very cheap

Factors To Consider When Creating a Succession Plan

Creating a succession plan is not something that should be left too late. When creating a plan, one must keep a goal, a decided outcome, or purpose clear in mind. With focused intent, it will be easier to ensure you achieve your goals. 

Additional questions to think about while you create your plan might include:

• Do you intend your succession plan to support any charities?
• Do beneficiaries have particular needs to be managed?
• Will a lump sum payment to an individual result in increased taxes or a decreased pension?

Your work here is to create a plan that is laid out, legally robust, and that will provide the key benefits you wish to see based on your current financial situation.  

2.1) Will You Provide the Right Level of Comfort for Beneficiaries?

You need to establish who the beneficiaries will be and what is the best way to provide for them. Is it best to bequeath a lump sum or over a period a time? Is there a need to set up a trust? What assets should be in the trust, and how would you make a lump sum payment? Are you advocating Warren Buffet’s philosophy “You should leave your children enough so they can do anything, but not enough so they can do nothing”. How much is enough?

Do you have a plan for how long financial support should last? Perhaps until a certain age or milestone is achieved? Perhaps for life? Will financial support stretch to support grandchildren that come along later? 

Once you have established your goals, think about who will implement them. This is particularly important if children under legal age are involved. 

2.2) Have You Factored in Inflation To Ensure a Sustained Living Allowance?

2.3) How Will You Ensure Assets Grow in Value?

2.4) Is Your Succession Plan Secured Against Changes in Laws, Including Tax Laws?

While moving accounts to offshore locations or establishing trusts may solidify your holdings, it is important to ensure that the structure is not too rigid that you are unable to make changes when there is a need to. The world has become more mobile than it used to be; cross border marriages and immigration made planning difficult; the government’s changing tax policy is a nightmare to businesses and individuals.

One of the best ways to ensure that your succession plan is secured against any changes is by reviewing and updating your plan regularly. You should also use professional assistance to ensure that you are still providing the most secure and stable plan. 

2.5) Have You Had Open and Honest Conversations To Ensure Transparency and Reduce Conflict?

How will your family react to your plan for the future of your estate? As the leader, you need to ensure that your reasons and intentions are clearly communicated, that they are understood, and that there are no conflicts that may arise. 

If there is to be a distribution of wealth, you want to avoid causing discord as much as possible. One consideration here is spouses and family members who are not part of the immediate family unit. Should you consider more complicated trust arrangements? 

These are all aspects of your plan that you should talk to professional advisors, and involve your family in meaningful conversations, about.

“An elderly gentleman was on his deathbed, as his wife and three children and nurse stood close by

Then he spoke: “Bill, you take the Beverly Hills houses.“Mary, you take the offices in the Center Center.“Debra, the apartments over the L.A. Plaza are yours.

“To my dear wife, take all the residential buildings near downtown.”

The nurse was really impressed. She said, “Your husband must have been quite a man, amassing so much property to leave to all of you.”

And the wife responded, “What property? … the schmuck had a newspaper route!!”

3) Additional Complexities for Families With Businesses

Just as a business must have clear objectives in order to succeed, so too can families benefit by having a clear understanding of expectations, obligations, and positions. The time for your children  to discover that they are to be the next CEO of your business is not after you have passed, but when you are still there to nurture them into the role. 

3.1) Will Business Assets Remain Profitable and in the Family?

If the family wealth includes business assets, Identify which assets will be held long-term, and which will be sold within the next 3-5 years. Like all aspects of creating a strong succession plan, this has to do with transparency and openness. Do you expect the business to provide for your family? You will also need to consider if any businesses should remain in the family, or be sold.  This could very much depend on the culture and value that you would like to instill in the future generation.  Research shows that Jewish families focus on wealth succession,  and are inclined to use the fund from selling the family business to start a new venture.  Chinese tend to want to hold onto the businesses 

These are not considerations to be taken lightly and should be part of discussions with professional advisors and family members, as well as other key stakeholders.

3.2) What Is the Selection Process of a Successor for a Family Business?

In a family business, some people are enthusiastic about being involved, while others would rather cut off a foot than draw a salary with the family name. Unfortunately, neither stance is a guide to finding the people with the right skills, temperament, or knowledge to fulfill necessary roles. 

As with all long-term planning, transparency is a key component to developing a fruitful succession plan. However, you should be careful not to focus on simply replacing yourself. While you may have created a successful legacy to leave behind, the next generation will have different challenges to overcome. As such, they will need different strengths and skills to rise to these challenges.

3.3) Do You Have Key People Who Can Act in Roles of Responsibility?

To strengthen your succession plan, put into mindful consideration which family members would make good candidates for key positions in your business. Evaluate not only their willingness, but the skills and aptitudes needed. 

“Preventing Negative Conflict in Leadership Succession” (Storm & Carbo) talks about ensuring ethical standards for leadership and how essential this is when creating your succession plan. 

In addition to the required skill set and education, some of the key character traits that they consider to be vital when choosing successors include:

• Good character
• Good judgment
• A sense of justice
• Wisdom
• Courage
• Self-restraint
• Dependability
• Honesty

To ensure multi-generational wealth and an enduring business legacy, potential leaders (and supporting roles) need to be able to look holistically at the needs of subordinates. This means being able to see and understand the needs of an individual and balance this with the needs of the family, business, and community – all while ensuring an ethical approach.

4) How Will You Create Your Plan?

Presumably, you will have a Last Will & Testament to establish your wishes for personally owned assets, as well as clear instructions for managing the transfer of those assets. By having a clear plan in your Will, and maintaining open and transparent conversations with those affected, you can minimize grief and distress. 

4.1) Sort Through Your Assets To Ascertain Appropriate Legal Ownership

After discussions with a financial planner, estate planner, lawyer or accountants, it may be decided that it is in your best interest to alter legal ownership of certain assets. This may include moving the ownership of art or property into various trust setups, changing the beneficiaries for life insurance policies, or establishing and managing a system to move assets out of your name over a period of time. 

4.2) Ensure Beneficiaries Will Have Appropriate Access When They Need It the Most

4.3) Meet With Appropriate Professionals

The majority of people with multi-generational assets will already have relationships with certain professionals. But to ensure that you have created a strong succession plan, it is a good idea to go through your requirements and bring on other professionals as needed. 

This may include lawyers to draw up legal documentation, succession planners, financial advisors for advice on appropriate structures, accountants for financial advice, or insurance brokers for insurance policy clarification.

When you are interviewing for professionals to advise you on the establishment of a secession plan for your estate, consider asking:

• What relevant qualifications do they hold?
• What is their experience with estate planning?
• Have they implemented an estate plan as complex as yours?
• Do they have suggestions for improving the implementation of your estate plan?
• What are their fees for consultation and on-going services?

4.4) Review Your Succession Plan

Succession planning is an on-going process! Set a period (every year, every ten years) and go through and update your plan. This not only ensures that your assets and liabilities are up to date, but also ensures that beneficiaries’ positions have not changed, and that you are still following the best tax and legal policies.