Family governance structures and their importance in estate planning

The importance of sound, careful and strategic estate planning cannot be overemphasised. Especially with the world about to enter the third year of a global pandemic. Not to mention, the Great Intergenerational Wealth Transfer has now begun and the last thing any business owner wants, or needs, is for things to fall over at an organisational level.

Families can be complicated at the best of times and never more so than when the family business and money is on the table.

That’s why getting your family business governance structures in place and working exactly the way you want them is one of the most crucial aspects of estate and business succession planning.

What is family governance? 

Family governance applies to the processes and structures put in place for family decision making. It formalises how things will work and operate in relation to both the family and business because, let’s face it, sometimes it can be difficult to separate them. 

All families are different. Therefore, all family governance structures should be different. They should be created to allow for tweaking here and there, as well as aligning with family values and dynamics. Afterall, family squabbles over business, money and inheritances are nothing new.

These processes and structures should be created with the best interests of family relationships and ongoing business needs. This means bringing in independent advisors and planners who can view this intricate network of family and business with clear and impartial eyes.

Why is family governance important?

Family businesses are by their very nature far more complex and complicated entities than their non-family peers. For a start, the person who may see themselves as the natural successor, may not actually be the best person to take over a family business. Or the person everyone wants to take over, may find their passions and interests lie elsewhere. It’s also far easier to come home from a difficult day at work and gripe about a tough day when your boss or co-worker isn’t your sibling. 

While it’s true that both family and business are all about relationships, they’re very different. Family relationships are built on family ties and emotions, both of which can cloud even the best of judgement at times. Whereas business relationships are all about contracts, facts and data. The polar opposite of emotional ties.

It’s for these very reasons, bringing in independent advisors to put family business governance structures into place is a sound decision for both your family and your business.

What to think about when creating family governance structures 

Family governance is all about finding the best way to make decisions about the business, assets, and succession in a clear, concise manner. While this will almost certainly involve some standard business structures or processes, your financial advisors should also allow for your particular family nuances. The goal is to remove emotion and possible conflict from ongoing business decisions, today and into the future.

Don't delay discussions

Don’t leave your family or your business unprotected by not putting family governance structures into place right now. A non-family business would have them in place, so why not your family business? While many family businesses are built on shared goals and dreams, families can, and do, change. 

Focus and communicate 

Put in place the processes your family and business needs. Some will be standard, others may require more careful discussion and consideration. Where does the family want the business to go? What are the short and long term goals? Are you dealing with a business succession plan involving two or three kids or are there many generations and family relationships at play?

Speaking of business succession plans...

While this 2018 Family Business Survey revealed some 60 percent of Australian business owners are planning for a family member to take over their business, only 17 percent have a formal succession plan in place. That’s a pretty scary statistic. 

Succession planning takes time and we offer estate planning services to protect your business and family. 

Slowly does it 

Succession planning, business exit strategies and even just building on your current business processes all take time. They can also be difficult as older generations confront the realities of handing over their business and legacies to the younger generation. Dealing with not only your own mortality but successfully passing wealth to the next generation may trigger unexpected emotions. Which is actually the very reason why independent financial advisors should be involved in the process. 

Flexibility is key

For some families, implementing new or updated governance may prove challenging. So take it slowly and give everyone time to adjust. Execute changes and then let everyone settle in. Perhaps then look to review in twelve months’ time.

Any family governance structures should be reviewed regularly, such as every five or so years. This allows time to ensure any previous changes are working and the family can make further adaptations as needed.

If you’re not sure where to start, contact one of our experienced team members for a discovery call. We’re ready to help you develop the family governance structures and processes you need to ensure your business passes seamlessly to the next generation.