Passing along the family business – and the wealth associated with it – to the next generation is not a one-time event; it is a process that can be aided by open and respectful communication between the different generations of family members.
“Open discussions in the family are equally or even more important than the legal and financial structural framework for transferring the business or the wealth to successors,” says Pamela Cross, chair of STEP Canada and lawyer with Borden Ladner Gervais LLP.
Ms. Cross, who specializes in taxation, estate and trust planning, believes that the outcomes for transferring family enterprises improve dramatically when the family is dedicated to resolving “communication issues,” she says. “There have to be ground rules on what decisions have to be made and how to make them.
“People often assume that all they need is a tax plan for transferring ownership, but we find that – to ensure things move forward without substantial conflict – the different generations have to work together and respect each other’s perspective.” The tax and legal planning must support and complement – rather than compete with – these objectives.
Transferring the business
Having built and led the business for many years, “senior generations often have a very clear vision on how the family enterprise should be run,” says Ms. Cross. But it is important that younger family members who are interested in taking a leadership role are encouraged to share their views about the future of the business, even if they are not completely aligned.
For example, the younger generation may assume senior leaders are going to retire, but Ms. Cross says there is evidence that business owners typically work well past the average retirement age and stay involved even after they no longer oversee day-to-day operations. Their strong emotional attachment to the business plus their knowledge and expertise should inspire respect in their successors, who, in turn, should be valued for contributing fresh perspectives and ideas.
Equal versus fair
Passing the reins for running the family enterprise brings a set of challenges – with a transfer of wealth adding even more complexity. For many business families, the goal is to divide assets fairly, says Ms. Cross. “The senior generation often wants to ensure that everyone can benefit from the family wealth. But in circumstances where only some family members work in the business, treating everyone equally may not be fair.”
Ms. Cross suggests that the process of working out equitable solutions has to involve honest and respectful conversations about the views and expectations of all family members. Advisers and mediators can help to facilitate difficult discussions, she adds. “STEP Canada members have the internationally recognized trust and estate practitioner designation. If you need advice, a qualified practitioner is where you should start.”
Wealth and giving
For wealthy families without an active family business, the key issue is often transferring the wealth in a way that will ensure a continuing legacy, says Ms. Cross. “In this scenario, the biggest concern we see is the senior generation questioning whether younger family members are able to manage the wealth appropriately.”
Involving the next generation in discussions about the family legacy and about sharing wealth can inspire and motivate them, says Ms. Cross. “Many business families are leaders in their communities – often with a strong philanthropic tradition – and they want their family legacy to continue. They want the younger generation to understand that while they reap benefits from being part of the family, this comes with a responsibility to uphold the family values.”
Starting the conversation
Ms. Cross is a strong advocate for early engagement. “Including family members in discussions about the business and family values at an early age can create a foundation for the next generation to get involved in a meaningful way,” she says. “When they are welcome at the table, they develop an appreciation for what the family is all about.”
For more information about STEP Canada’s resources for family businesses and the professionals advising them, please see advisingfamilies.org/canada.
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