Australia is facing the largest wealth transfer in history, with trillions in assets ready to change hands in the next 20 years. Two major factors are driving this change: 1) a large portion of our privately owned companies will need new owners as our population is aging; 2) Australia’s unprecedented resource and property booms, coupled with post-war wealth, have compounded. This leads to great opportunities for the next generation and the communities they live in - but it also requires good planning and communication to maximise these opportunities and not fracture families.
Six years ago, when Ingvar Kamprad the founder of Ikea (and one of the world’s wealthiest people), passed away there was much talk about his decision not to pass on the business to his family. In this article from Bloomberg we read that the 91-year old Swedish 'father of flat pack' removed control of the world-wide furniture behemoth from his sons’ reach. He had the foresight early on to establish two foundations to look after the company when he was gone, so that no one person was left responsible. A selfish or clever move? Maybe he knew something no-one else did? Certainly the news of this choice left many with visions of a long line of lawyers queuing up to represent the family.
The concept of passing wealth from one generation to the next, or the wider family, seems like a simple matter: there’s a will, and perhaps some slightly more complex structures if a business is involved, which form an overall plan. However the reality of inheritance means the complexities of succession planning generally increase the greater the wealth is - not only in structure, but also in demand by the beneficiaries.
In Australia, the concept of intergenerational wealth transfer is underrated by many. A simple conversation between parents and children can, in more cases than not, resolve any burning issues well before death. But even a will and a solid fireside chat with your folks may not result in a clear cut resolution to the estate. As we all know, emotions are a driving force in many estate-related disputes, and emotions can be at their highest when a wealthy loved one has passed.
When faced with the question of succession planning, too many of my clients say: “I’ll leave that to them [my children] to sort out”, This lack of care, or even emotional detachment, from the transfer of wealth may seem frivolous but perhaps is more a reflection of reality than naïvity. In other words, “why should I tell them what to do with my wealth when I won’t need it, and they’re just going to fight over it anyway?” The general result being that the deceased chooses not to air their personal wishes for fear of upsetting someone while they are still alive, and the estate ends up in mediation or other legal proceedings to find a resolution.
The fact is that when you’re healthy and capable is when you really should make decisions about what to do with your hard earned wealth, especially if it’s sizable and involves a company or multiple assets. Statistically there are now more Australians than ever before who will die wealthier than when they retired due to increases in property assets and superannuation and so there is a requirement to regularly review succession plans. There are also more registered charities than ever before as our nation becomes more diverse and more complex. Philanthropy may well be part of the succession plan as well, which requires specificity and careful consideration.
Ingvar Kamprad’s choice to place Ikea in the hands of an independent foundation ensured the business has continued to grow and thrive in his absence. Maybe he saw the writing on the wall? Maybe he knew the sad statistics… Data has shown that 90% of family wealth is often gone after three generations…many say a fortune can be ruined in just one generation. Regardless of why, in making this decision about his wealth he removed the opportunity for his family (or others) to squabble over his fortune and in so doing secured the longevity of his other ‘baby’ for many years to come.
One thing is for sure, that Ingvar Kamprad’s conscious succession planning and legacy means that your children, and even your grandchildren, can one day kit out their first home with the same furniture that you did when you were young. Maybe whilst you’re helping your grandkids screw together yet another piece of flatpack furniture, you can start the conversation about what you want, what they want, and how you’ll manage your wealth moving forward.