“It’s [estate planning] listed as one of the secondary reasons for a loss of family wealth and what typically happens is poor estate planning leads to a slowdown in the winding up of the estate and the administration of the estate,” Sanlam fiduciary and tax specialist, Carien Strauss told CNBC Africa.
“Unexpected inheritance taxes that need to be paid [are] not properly planned for. This results in frustration for the family members which leads to unnecessary conflict between them. It’s important and imperative to get that estate planning and succession planning right.”
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According to Strauss, about 70 per cent of the family wealth will be squandered by the second generation family and by the time it hits the third generation family, about 90 per cent of it will be lost.
“That is an astonishing figure to look at and research has shown that the main reasons for that is firstly a distrust among family members and secondly, a lack of communication between them,” she indicated.
“Another primary reason is a failure by parents to properly prepare their children to manage the sudden windfall responsibly. Secondary reasons are cited as an extravagant lifestyle, excessive spending, inheritance taxes that are payable on death and also, poor investment advice.”
She added that the improper education of the younger family members is usually when the family wealth is lost, and that communication on and around the subject is key.
“A first step for family members would be to initiate the conversation, have an open dialogue with the children, to tell them about the family wealth and the family heritage and also to involve them in an active conversation on the vision of the family going forward,” Strauss stated.
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“Secondly, involve them in the decision making of the family business. If you have a family trust, invite them to trustee meetings, and if you feel that they’re ready for it, you can even add them as trustees on the trust, and delegate certain administration functions to them.”
Strauss further explained that this cements the relationship you have with the family advisers and it also helps the family to understand the rationale of certain decisions that are made.