Take-Away: In order to avoid the ‘shirtsleeves to shirtsleeves in three generations’ adage, we find ourselves spending more time with closely held business owners, not only in structuring their estates to avoid probate and federal estate taxes, but to also prepare their families for the responsibilities of managing that inter-generational transfer of wealth.  It seems our counseling families now  focuses not so much on preserving wealth as it is addressing the impact of that wealth on the business owner’s heirs. The take-away point is the need to have constant, and candid, communication among all family members which the advisor facilitates.

Background: Over the past several weeks I have read many articles on the governance of business-owning families, with the common theme to avoid ‘fire-sales’ of the family owned business on the patriarch’s (or matriarch’s) death. The articles all addressed  where traditional estate planning for families that own closely held businesses falls short- which one article calls this the legacy gap. The advisor’s focus on family dynamics when a closely held business is involved shifting from one generation to the next is also called heritage planning.

Many studies have been conducted over the past several years with the focus on why families succeeded, or failed, over the course of three generations, to preserve the family business that provided the wealth that was created by the original entrepreneur. Those studies explored the fundamental question: Why do families fail to preserve their wealth over the course of three generations? Some quick conclusions from these  studies include:

  • Only 3% of the wealth transfers failed due to inadequate or non-existent financial planning, or due to estate or generation-skipping taxes or simply bad investments;
  • The failure to prepare heirs for their roles and responsibilities in handling that family wealth was the cause in 25% of the ‘family business failures’ that were studied;
  • 10% of the documented business failures were attributed to the lack of an agreed upon family mission or vision; and
  • The lack of communication and trust were the most important factors that represent 60% of the reasons families failed to (i) successfully transfer wealth through a family business and (ii) preserve family unity.

12 Distinguishing Factors of Heritage Planning: One study  identified 12 elements to sustain family wealth and unity for several generations.  Cochell & Zeeb, “Beating the Midas Curse,” 2nd Ed. (GenUS LLC, 2013). In that study, Rob Zeeb, CEO of The Heritage Institute, identified these elements/practical guidelines/distinguishing factors, call them what you may, that can become a roadmap for a family’s heritage planning. An abbreviated summary of those elements follow:

  1. Trust: Foster strong and effective communication among family members, which is integral to build trust between the generations;
  2. Vision: Develop, maintain, and regularly re-visit the intended vision for the present and the future;
  3. Meet Regularly: Assure that the family meets regularly, in order to create a culture that encourages open, honest, and free communications, all of which, in turn, promotes family identity and unity;
  4. Re-Define Wealth: Promote a balanced definition of the meaning of ‘wealth’ which includes emotional wealth or capital, as well as financial capital;
  5. Promote the Business of Being a Family: Keep the family business (including investments) separate from “the business of being a family; there must be a recognition and development of everything of that binds you as a family;”
  6. Re-Define Success: Identify the roles necessary for the family to be successful ( defining success, both non-financially as well as financially;)
  7. Encourage Participation: Inspire individual family members to participate in this process- for their own individual reasons; this might involve the collective creation of a family purpose statement that is informed by the family’s core values, which is identified as an important component to any heritage planning;
  8. Actively Mentor: Train and mentor each generation; this mentorship might take the form of sharing pre-inheritance experiences to prepare children for the real responsibilities that they will encounter later in life; this might also entail identifying and articulating the senior family member’s ‘stories,’ heritage, life lessons, values, standards and guiding principles;
  9. Transition Leadership: Facilitate the genuine and intentional transfer of leadership from one generation to the next generation;
  10. Insist on a Team of Advisors: Require trusted collaboration between and among professional advisors, so that there is a unified voice that guides the family;
  11. Institutionalize Family Governance: Deliberately create mechanisms for ongoing family governance; and
  12. Don’t Wait: Start Now!

All of these intentional steps or observations are designed to prepare the next generation of family members to be good stewards of the family’s wealth, to be productive citizens, to establish their own identities, and to develop their of sense of self-worth, or as what some family advisors seek to inspire, “to find meaning and purpose in life.” Our job, as part of the family’s team of advisors, is to act as counsellors as part of a collaborative team to lead these families on this journey. The next time you sit down with a family business owner, you might work into that discussion the various aspects of heritage planning.


Levin, “The Legacy Gap: Where Traditional Planning Falls Short” Estate Planning, (March 2018 p.25)

Angus, “Governance for Business-Owning Families: Part II” Trusts & Estates,  (March 2018, p. 43)

Leibell, “Avoiding the Fire Sale of the Family Business at Death” Trusts & Estates (March 2018, p.48)

Campbell, “The Challenges and Opportunities of Family Leadership” Trusts & Estates (March 2018, p.27)