Maya Angelou once said, “If you are going to live, leave a legacy. Make a mark on the world that cannot be erased.” Sustainable wealth succession embodies the legacy a wealth creator imparts to their family and communities in which they operate. Additionally, it should be a top priority for wealth creators, regardless of the extent of their wealth.
In recent years, sustainability has been perceived as solely the concern of environmentalists advocating for the protection of nature. Sustainability refers to the principle of producing goods and services in a manner that avoids depleting non-renewable resources and minimises environmental impact. When applied to wealth succession planning, sustainability emphasises creating a long-term, initiative-taking strategy, designed to ensure continuity, resilience, and adaptability. However, all components of an effective ESG strategy (environmental, social and governance), is of equal importance, if not more important, when considering the sustainability of wealth.
Wealth succession is broader than just the physical transfer of wealth to future generations. Successful wealth planning involves identifying and preparing key individuals to step into critical roles, minimising disruptions, and safeguarding business continuity. A sustainable approach to succession planning prepares families for dynamic and evolving conditions, whilst ensuring leadership readiness and risk mitigation. Succession is regarded as successful when wealth is transferred from the third generation to the fourth, provided there is sufficient capital. Successful wealth succession also encompasses the transfer of wealth to philanthropic causes and supporting the societies the family operates in.
Governance and communication
In relation to sustainable succession, planning a governance framework and communication systems are key players. Good corporate governance helps create a framework for balancing clients’ interests. It lays the foundation for how a company manages its operations, uses its resources, how the company applies innovation and implements corporate strategy. Additionally, service providers (wealth management professionals) need to understand the family’s values, legacy goals and risk tolerance levels which helps build trust and transparency. From this, it can be noted that open communication fosters a collaborative environment.
The governance framework around the family’s wealth wither eases or hinders succession. In designing the structure, thought needs to be given as to the preferred fiduciary structures, the area they operate in and suitability to the culture of the family. The decision should be based on written advice that takes into consideration the practicalities of the family circumstance, ability to contribute to the family’s capital and financial aspects such as tax and investment strategies.
Effective communication within the family as well as with the overseers of the fiduciary structures ensures success. If, by example, the Trustee is familiar with the needs of the individual family members, informed trustee decisions can be made. The wealth creator should be encouraged to engage with the next generation, by providing adequate education, and empowering them to take control of the capital as and when the time is right. All three elements are crucial to ensure the family’s capital can be handed over with confidence to the next generation.
Dennis Jaffe emphasises that families should focus on more than just preserving their wealth. They must also cultivate a legacy by developing responsible future generations, fostering connection and alignment, and making impactful use of their resources1.
Building and support social groups the family interact with
The first and most important social grouping is the family itself. The wealth creator carries the burden of putting in place structures that will survive multiple generations. Wills and testaments are helpful in providing a gift to the immediate next generation. To ensure that the capital is transferred effectively, fiduciary structures like companies, trusts and foundations should be considered. The fiduciary structure should ideally be suitable for the protection of the capital whilst generating income that the family can live off.
The family takes on the burden of supporting the different societies they function in. These societies can be the employees within a family business, charitable causes in their local city, or efforts to safeguard animal welfare.
Jaffe emphasises that successful intergenerational families prioritise community engagement, focusing on sustainability and social responsibility. They aim to go beyond their own prosperity, considering the well- being of employees, community members, suppliers, customers, and global health. He further notes that after achieving substantial financial success, subsequent generations often turn their attention to the family’s non-financial wealth, such as the quality of their relationships and the causes they support in alignment with their purpose or vision.
Sustainable investments
By creating an investment strategy that focuses on using the capital of the family to generate income creates a well-crafted strategy. However, in formulating the investment strategy the next generation may feel their non-financial wealth (or capital) is their way to contribute to an effective ESG strategy. Evidence of this generation’s appetite for social investment emerges in surveys. For example, 93 per cent of millennials believe social or environmental impact is important to investment decisions, according to US Trust, part of Bank of America Private Bank *2.
To supplement the knowledge received in formal education, family members should be encouraged to focus on expanding the ways in which education can help activate more sustainable choices. This foundational knowledge will be critical as the next-generation workforce looks to fill the need for green skills, or skills that enable the environmental sustainability of economic activities in the future.
Leaders who emerge through sustainable succession planning are uniquely positioned to champion strategies that emphasise environmental sustainability and social responsibility. These principles align with the rising importance of ESG (Environmental, Social, and Governance) investing, which has become a bridge between generational preferences. Research has shown that while millennials often lead the push toward sustainable investments, all generations recognise the value of responsible investing. This shared commitment fosters collaboration and ensures that the family’s values and wealth strategies remain aligned.
Engaging the next generation in setting the family’s investment strategy ensures that financial capital is structured in such a way that they can take control when the time comes. The key to making it sustainable is to find the balance between the aims and goals of the current generation with the desires and views of the next generation. Listening and acknowledging the views of the next generation helps to keep them engaged and interested in the family’s wealth.
Risk management
In his book Borrowed from my Grandchildren, Jaffe suggests that family wealth should be regarded as a business in its own right. This perspective holds merit, and if more families adopted this mindset, it could transform how they approach and manage their wealth.
Risk management is not something that a family usually considers in structuring their wealth vehicles. However, it can be a tool that assists in ensuring the wealth is sustainable and can be transferred to future generations.
The risk management policy of the family should consider the risk embedded within the investments of the family as well as the jurisdictional risk (country where the fiduciary structures are operated from), country of residency risk and political risk etc.
Conclusion
The design of measures that ensure the wealth succession plan of the family is sustainable is essential for the future generations so they can bare the fruit of the wealth creators labour for generations to come.
The sustainability of the structures looks not only to the type of investments that is made (ESG orientated investments) but also the governance structures and engagement of the next generation.
The ultimate risk to manage is that the families live off the capital rather than the income it produces.
Roelf Odendaal joined Boston as a Client and Business Development Executive in 2023 as part of the acquisition of the fiduciary business of Turnstone (Isle of Man). He was born in South Africa and moved to Mauritius in 2001 to establish the Turnstone Group, Roelf moved to the Isle of Man in 2004 when he became Managing Director of Turnstone, he remained in that role until the acquisition. Roelf works with High and Ultra High Net Worth families to establish multi-generational and multi-jurisdictional family businesses and assists in establishing family governance systems for the families. As one of the founders of the Isle of Man Indaba, Roelf is deeply committed to expanding growth opportunities between the Isle of Man and South Africa. He holds a B.Com in Accounting and Business Accounting, a MBA from Birmingham University (UK) as well as a STEP Advanced Certificate in Family Business Advising. He is a member of the Institute of Directors as well as the Society of Trust and Estate Practitioners. On weekends, Roelf can be found wondering through the Manx countryside and glens capturing that which makes the Isle of Man such a wonderful place to live in. He regularly visits South Africa and is keen supporter of all things concerning wildlife.