Building a successful business can be one of the most effective ways to create substantial personal and family wealth. Over time, your company can become your largest asset and an important source of financial security.
Yet, creating wealth and protecting it across generations are different challenges. The strategies that helped you build your wealth aren't necessarily the ones best suited to preserving it for your family.
As your personal wealth grows, your focus should therefore broaden from creating value to considering how that value can provide lasting financial security for your family while preserving their options for the future.
Here are three strategies that can help you protect what you've built and prepare your wealth for the next generation.
- Start succession planning early
Start planning for the eventual transfer of your business well before you expect to step away. Early succession planning gives you more time to decide how future ownership and leadership should work, as well as what role you might continue to play.
For example, you might expect an adult child to take over the family business. Starting that conversation early gives you time to establish whether they want the responsibility and help them develop the experience they need.
Whatever direction you choose, reviewing your wider arrangements with trusted advisers like private client solicitors can help ensure your personal plans remain aligned with it.
- Use lifetime gifting strategically
You don't need to wait until your death to transfer wealth to the next generation. Lifetime gifting can allow family members to benefit sooner while giving you greater control over when wealth changes hands.
Depending on your circumstances, it may also be more tax efficient. Under the seven-year inheritance tax (IHT) rule, an outright gift to another individual will generally fall outside your estate for IHT purposes if you live for seven years after making it.
For example, you might help an adult child with a house deposit rather than leaving the same money to them through your estate. Before making a substantial gift, consider whether you can still meet your own long-term financial needs.
- Diversify wealth beyond your business
A successful company can make you wealthy on paper while leaving much of your net worth concentrated in a single asset. Building assets outside your company can reduce concentration risk and make your family's financial security less dependent on the business.
For example, you could use some of the income you take from your company to build a diversified investment portfolio gradually. If the business later experiences difficulties or your planned exit takes longer than expected, you then have other assets to draw on.
Diversifying can help create a family balance sheet that can stand independently of the company you've built.
Take a long-term view of your family wealth
Protecting wealth across generations involves making thoughtful decisions while you still have the flexibility to shape what happens next.
Take stock of where your wealth sits today and consider whether your current arrangements still reflect what you want it to achieve for your family. Doing so can highlight where you might need to take action and give you greater confidence that what you've built can continue supporting your family as circumstances change.
What decisions could you make to give the next generation more options?
