Worries of the super-rich

The biggest concern of people who have more money than they can reasonably spend in their lifetime is how their children will handle the wealth they will leave behind.

This was one of the findings of the study conducted recently by the law office Withersworldwide on more than 4,500 persons and interviews with members of 16 very rich families in Europe, North America and Asia.

The respondents were divided into two groups: The super-rich or those who have wealth worth $10 million or more, and the moderately rich or those with less than $10 million.

Although both groups put “health” on top of their anxiety list, they differed on the second most significant concern. The super-rich are apprehensive their children “will lack the drive and ambition to get ahead.”

This unease overrides fears of failure of investments, inability to support the family or marital discord.

The moderately rich, however, do not share that pessimism. The prospect of their children losing ambition ranks fourth only in their worry list.

According to a tax and trust partner of the law firm, “It is easy to see why the moderately wealthy don’t worry about that as much. If they are worth around the $10 million mark, realistically they are not well off enough to put their children in the position that they never have to work.”

Inheritance

The survey also showed that affluent families are anxious that third generation family members would eventually lose their wealth.

This sentiment proceeds from the belief that “if the first generation are wealth creators then the second generation tend to be wealth preservers, but it is the third generation that families are worried about.

“If they have had everything put on a plate for them without seeing any of the hard graft that goes into creating that wealth, then they can lose track of how best to use that wealth and how difficult it was to build up in the first place.”

The thought of instant wealth adversely affecting their children’s drive to make something good of themselves has influenced some of the world’s business tycoons against leaving their fortunes to their children when they die.

Microsoft founder Bill Gates, one of the richest persons in the world, has publicly declared that he and his wife will bequeath their $58-billion fortune to charitable causes, rather than to their three children.

Warren Buffett, reputed to be the savviest investor in the United States, has committed to give away 99 percent of his wealth, either in his lifetime or upon his death, for philanthropic purposes. According to reports, 83 percent of his treasure has been reserved for the Gates Foundation.

The list of über rich people who are averse to making their children wallow in inherited wealth include eBay founder Pierre Omidyar (who became a billionaire at age 31), business tycoon Michael Bloomberg, iron magnate Gina Rinehart (the richest woman in Australia) and Home Depot co-founder Bernard Marcus.

Planning

If a similar study were conducted on our country’s financial elite, there is a strong possibility that the same results would come out.

The pervasive effects of too much wealth being bestowed on a person without breaking a sweat do not recognize cultural or social boundaries. Any society that uses wealth as a measure of prestige or glory is susceptible to that problem.

It therefore does not come as a surprise that many of the country’s business tycoons who are in their late ’70s or early ’80s are discreetly taking measures to address that concern.

The “estate planning” involves the assumption by their children of key executive positions in their businesses as soon as possible or after they have learned proper management techniques.

To make the “apprenticeship” program more effective, related companies are placed under the umbrella of a holding company or consolidated.

Aside from simplifying the management process, these arrangements give the children a preview of the delineation of authority or corporate hierarchy that the head of the family wants them to observe and honor upon his demise.

The early delegation of responsibility carries with it the underlying hope [and expectation] that it would ingrain in the children the same ambition or vision that propelled their parents when they built and brought the company to the position it now enjoys.

Jealousy

No matter how well mapped out these succession plans may be, there is no assurance that they will be followed to the letter or work as envisioned when the Grim Reaper pays a visit to the family patriarch or matriarch.

As long as the head of the family is physically and mentally fit, peace and harmony among his children in running their respective business assignments can be expected.

Everyone will be in his best behavior and will avoid any act that may induce their “oldies” into revising the assignment of executive positions or, worse, disinheriting them in their last will and testament.

When the last parent passes away, there is no assurance that peace in the family will remain the way it was when either or both parents were still alive.

Deep seated hurts, envy or sibling rivalry may emerge and threaten the viability of the succession plans earlier put in place. The in-fighting often happens if the business units separately managed by the siblings are mismanaged or fail to post the expected profits.

Unless an equalization or fair sharing of profits agreement is in place, the disparity in wealth distribution among the children could give rise to intra-corporate disputes or civil suits.

There have been instances of siblings filing criminal suits against each other or conspiring with third parties to change the composition of the board of directors even if it would eventually lead to the loss of family control.

When second generation members fight, the discord created often spreads to the third generation or, worse, to the succeeding generations.

Blood supposedly runs thicker than water. Unfortunately, money sometimes has a nasty way of diluting it.

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