For many families that have built their wealth through a closely held business, succession planning is often assumed, as if it will naturally occur when the time comes. In reality, for it to be done well, it’s often a years-long process that demands deliberate preparation with the family and key stakeholders. Because of this misunderstanding, even among sophisticated ultra-high-net-worth families, succession planning remains one of wealth management’s most consistently delayed and fragile components.
Why? Because succession is personal. It touches every corner of a family dynamic, from control and identity to fairness and future vision. Financial advisors and clients tend to focus almost exclusively on the legal, structural and tax-driven aspects of succession, when in most families the most daunting aspects of succession planning are qualitative, rooted in the challenges we humans have confronting change, dealing with entrenched business and family identities and managing the weight of business and family history. Without a clear framework in place, transitions can be destabilizing, leading to fractured relationships and, in some cases, the forced dismantling of the business itself.
Financial advisors must help families navigate these dynamics before they escalate, especially as the Great Wealth Transfer accelerates. That requires treating succession planning not as a moment in time but as a long-term strategic process.
That Pesky Thing Called Human Nature
When a business is the principal source of the founder’s financial wealth, it’s both natural and understandable that she or he might come to the view that the best way to preserve and grow that wealth is for the business to remain in the family and the family to remain in the business. But while understandable, it is also undeniable that the founder’s goal of unified ownership and control is in conflict, at least to some degree, with a basic element of human nature: the need for some measure of autonomy and independence; the need for a sense that we have some control over our own destinies. As the family grows and the number of stakeholders increases, it’s usually the case that the number of decision-makers remains relatively small; this asymmetry has the potential to exacerbate the built-in conflict.
As the family grows and the generations multiply, those in control will become increasingly remote, in generational terms, from the founders. In some families, the founder’s choice of a successor may be respected largely as a matter of the filial respect the family believes is due a parent, especially the parent who created the business. However, as those in control are often chosen by family members who are generationally distant from the founder—descendants whom the founder may never have known, the moral and persuasive force of those succession choices may not receive the same inherent respect from that ever-growing group of stakeholders, who are similarly distant from the founder.
Families must recognize the inherent conflict between the goal of unified ownership and control and these elements of human nature, and the succession process must incorporate a series of structural and cultural strategies designed to address this conflict and mitigate its effects.
Start With Clarity, Not Assumptions
In many family businesses, the founding generation maintains control until the very end, often thinking that doing so ensures stability. But this assumption does not always lead to clarity when it comes to a succession plan. Without defined roles and explicit governance structures that the next generation understands and supports, even the best intentions can result in conflict. Who has operational authority? Who owns what? What happens if one stakeholder wants to sell and another doesn’t? These are not questions to answer reactively in moments of grief or transition. They should be built into the design of the family business from the start.
Plan for different levels of engagement across the family
As the number of stakeholders grows, there will likely come a time when most family members are not involved in the business. It often will be important for the succession plan to employ structural and cultural mechanisms to drive continued family engagement, if the goal of unified ownership and control is to be realized. On the structural level, think dividing ownership into voting and non-voting shares, using voting trusts or more plain vanilla irrevocable trusts to separate financial benefit from operational control and creating financial advisory roles for family members who want to contribute strategically and culturally but not day-to-day. Cultural mechanisms should drive adhesion and education: financial and business literacy generally; understanding of the company and what it stands for; it’s role in the community; the founders’ unique contributions and how subsequent generations have built on their success. The goal isn’t to force uniform participation; it’s to create a climate where family members feel pride about being included, in the way and to the extent that feels comfortable for that individual.
Addressing liquidity early and strategically
Major transitions often trigger liquidity needs: estate taxes, buyouts, charitable commitments or lifestyle adjustments. When these needs are addressed reactively, families may be forced to make rushed decisions that compromise their strategic objectives. Families are increasingly turning to tools like Grantor Retained Annuity Trusts (GRAT), irrevocable life insurance trusts and credit facilities to proactively manage these obligations. These tools provide the financial flexibility to execute transitions on the family’s terms, not the tax calendar’s.
Apart from those moments of transition, once again, it’s important to be realistic about the role that human nature will play, and the need for some measure of independence and autonomy. Accommodative dividend policies that balance the need for reinvestment, on the one hand, with the desire of family members who are not employees, and who thus do not benefit from salary, bonus and other perquisites of employment desire to realize some economic benefit from the company through the payment of dividends, can do a lot to prevent the conflict that often forms when some family members form the belief that they are not benefitting appropriately from their ownership of the business.
Governance Is What Holds Everything Together
Legal documents are the bones of succession, but governance is the meat. Families who prioritize regular communication through family councils, annual meetings, or defined decision-making bodies are better positioned to navigate the complexities of succession. Governance frameworks can also help diffuse the emotional intensity of decision-making by providing ongoing opportunities for alignment. At the end of the day, it’s not enough to have a trust and a will: families need to build and continually refresh a culture of togetherness that deepens and grows as both the business and the family grow.
Pilot the Plan Before You Pass the Baton
Before executing a complete transition, families benefit from testing components of the plan. This might involve inviting next-gen members to lead a philanthropic initiative, oversee an investment round or present financial results at a quarterly meeting. These lower-stakes opportunities allow both generations to observe leadership styles, clarify expectations and address differences in a constructive environment.
Running pilot programs prepares future leaders for the complexities of family enterprise. It also helps current leadership build trust and refine the plan based on real-world input. These iterations can reveal blind spots and strengthen governance for the long haul.
Succession Isn’t a Box to Check; It’s a Commitment
No single formula applies to every family, but one constant remains: waiting for a triggering event is almost always too late. Whether a founder’s vision is focused on business growth, community impact, or generational unity, realizing that vision requires planning that spans not just tax years but also life stages and family dynamics. Succession is not a moment; it’s a process. And the families who embrace that reality are the ones most likely to preserve not only their assets but their purpose.
For financial advisors, succession planning is as much about relationships as it is about regulations. When financial advisors help families fill the space between strategy and sentiment, they do more than manage wealth; they help preserve it. With the proper framework in place, transitions become opportunities to maintain value, leadership, and legacy that extend well beyond balance sheets.
Morgan Stanley, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal issues.
Trusts are not necessarily appropriate for all clients. Some risks and considerations may outweigh any potential benefits. Establishing a trust will incur fees and expenses, which may be substantial. Trusts often incur ongoing administrative fees and expenses, such as the services of a corporate trustee or tax professional.
