What causes rifts in family wealth transfer

Differences in perspectives across generations are among the key causes of conflicts in families when it comes to passing down family wealth in the modern business world.

A report by Standard Chartered (StanChart) also lists globalisation of both family members and their assets as another key challenge during succession planning.

The report by Standard Chartered Global Private Bank notes that ultra-high-net-worth individuals and their assets are increasingly becoming global.

As such, when succession planning is being done, cross-border asset management has to be factored.

This global perspective is coupled with different views between the current generation and the next in line on how business and family wealth should be managed.

A mistake that most families make, the report says, is handling succession as a one-off event instead of a continuous process that is self-improving.

The report notes that governance structures in family offices need to be robust, insisting that it (governance) is evolving from a back-office function to a strategic pillar of wealth management.

“Families that invest in professionalised frameworks make faster decisions, express greater confidence in their investments and achieve stronger alignment across generations,” reads the report titled, The Great Repositioning: How Ultra-Wealthy Families Are Rewiring for a Fractured World.

It states that nearly three-quarters of family office professionals (74 per cent) reported an increase in family conflict due to market volatility.

The report adds that far from signalling dysfunction, this level of engagement suggests that families are wrestling with the complexity of modern wealth management.

“Effective governance is a key pillar of resilience,” the report says. It adds that governance is evolving from a defensive safeguard into a proactive engine supporting resilience, agility and long-term legacy. The report states that succession is the ultimate stress test of governance.

“From capital allocation to philanthropy, governance provides a framework for effective decisions that amplify family values and deliver impact,” the report says. “Families that embrace this shift will not only manage conflict more effectively but also turn it into an enduring advantage.”

Succession planning

The report says that since ultra-high-net-worth families and their assets are increasingly becoming global, 87 per cent of families, as indicated in the survey done for the report, admit that better succession planning in this area could save millions when wealth transfer is done.

“When family members are spread across jurisdictions, challenges intensify,” the report says. Scott Chang of Standard Chartered Global Private Bank is quoted in the report as saying cross-border tensions are inherent with almost every major transaction, even philanthropy.

“In China and India, for example, strict rules exist for charitable donations from overseas. Without the right setup, it can take months to process a donation,” he says. The report quotes a senior family member with a Dubai-based family office saying cross-border dealmaking can be very challenging. In their case, about one-third of the family lives abroad, so distributions need to be handled carefully.

Cross-border transactions are also being informed by certain jurisdictions becoming unfriendly due to their tax regimes. The influence of generational perspective is also dictating how wealth is transferred.

According to the report, the vast majority (84 per cent) of family members agree that next-generation insights are essential, but one-third are dissatisfied with current engagement levels.

Older generation

It adds that roughly half of these dissatisfied respondents say that their successors are not sufficiently engaged, while the rest believe they are too involved, suggesting that striking the right balance is a challenge.

“Divisions within the family are mainly generation-based. Governance encourages the older generation to broaden their thinking beyond ‘If it’s not broken, why are we fixing it?’” notes a chief executive of a Hong Kong-based family office.

The report, which sources its findings from a global survey of more than 300 ultra-high-net-worth families and their advisors, notes that where older generations bring experience and continuity, successors contribute fresh ideas and new ways of thinking.

Therefore, harnessing this diversity can strengthen business strategy and fortify family relationships. “Nonetheless, guard rails are necessary to ensure perspectives are channelled productively. Strong governance frameworks provide a structured path for next-generation participation in decision-making,” the report says.

Christian Stewart, an independent adviser at Family Legacy Asia, says in the report that back-to-basics governance helps ensure one has a basic degree of professionalism when making decisions, rather than a situation where a family member can walk in with a random new idea ‘just because’.

“Family councils, project-specific working groups, and observational roles can give younger family members the opportunity to gain experience, so they are able to step up when required,” adds Mike Tan of Standard Chartered Global Private Bank.

“These mechanisms offer a pathway to education and incremental responsibility – allowing next-gen to build confidence without jeopardising business decisions.”

The report says that too often, succession planning tends to be treated as a single legal event. However, this should be a continuous process.