More Than Money – Family Succession Risk

My lawyer leaned across the table, apologized to my wife, and observed…

I don’t get it. Why don’t you just take the money.

I muttered something about Black Swans and protecting my kids. Later, I went home and ran the numbers. There was something I knew but couldn’t articulate.

Here’s what caught my eye

  • 45 year old man
  • Three young kids
  • What’s the probability that I don’t see my youngest graduate college?
  • What’s the probability that I fail to live long enough to train my successor?
  1. Of 100,000 men born in 1968, how many are still living? 94,507
  2. How many are forecast to be around when my youngest exits college? 80,308.
  3. How many are forecast to be around when my oldest is 35 years old? 62,761.

Source: Find The Best.

With a little bit of math, I can calculate my…

  • 20-year mortality => 15%
  • 30-year mortality => 34%

Those numbers are far higher than a Black Swan event. If I was on a board of directors then we’d be working to address the key-person vulnerability for the firm.

Fortunately, courtesy of my young wife, my kids benefit from a 90% expectancy of Mom or Dad making it for another 35 years. You can find a Couple’s Life Expectancy calculator here.

The risk to my family, comes from losing my skill set (financial, legal, strategic, accounting) before we have a succession plan in place. With a big age gap between me and any reasonable successor, the family needs a back up plan. However, my family doesn’t have the financial means to create a Family Office.

Life insurance doesn’t cover the skills and knowledge gap when your family loses an elder. It might give you money to hire outsiders but they nearly always work for their own interest, rather than the interests of your family.

What to do?

My answer has been to start a family council. The council consists of a lawyer, a doctor and a professional fiduciary. All of these individuals:

  • have known my family for 10-30 years
  • share the family’s values
  • have been seen (by our family) to do the right thing, even when inconvenient

I brief the advisers every 3-6 months about what’s happening in the family. I prepare documents for them that explain how we’re structured. I repeat myself a lot. My wife sits in on the meetings.

My annual cost is roughly equal to the Long-Term Care Policy that I carry. Additionally, I get frequent inputs of really good advice from a group of people that I trust to assist my family if I can’t.

When it comes to succession, I suspect that most of us do a better job for our firms than our families.

Your Son Thinks You’re Superman

When our oldest was 2, my wife bought me a halloween costume that left me less than impressed…

Big Bird

At least she nailed her own…

Wonder Woman

Fast forward a few years and we got ourselves back on track…

Super Ax

My purpose here isn’t to encourage your family to become the Justice League once a year. My purpose is to share some observations that I’ve picked up from watching five male generations interact within my own family.

You Are Superman – all reality is relative and, at least in a preschooler’s world, adults are endowed with super powers. We make food appear, we are HUGE, we can lift heavy objects with ease and we hold sway over every aspect of our young children’s lives.

When I admit that my son thinks that I’m Superman, certain positive outcomes flow.

  • I’m more patient with him
  • I can see how shattering it is when I don’t have time for him
  • I treat him better

In making a habit of treating one person better (because, well, I’m Superman), I create a habit that helps me treat everyone better.

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What happens when we look up the family tree?

Part of becoming an adult is creating an identity separate from our parents. The teenage years are all about the push-pull of this transformation. If you’re struggling with your teenagers then I’d encourage you to remember that somewhere in their psyche, you are still Superman!

The bizarre anger and rejection that we see in our families. The behavior makes more sense if you remember that your kids are trying to cope with the impossible task of defining themselves separate from the most powerful people they have ever known (their parents).

Some of us never let go of this habit of pushing away.

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Just like the Easter Bunny and Santa, at some stage, my kids are going to figure out that I’m not Superman.

But somewhere in their psyche, there will always be a seed that says otherwise.