Planning for Longer Lives Should Be a Family Project

The following article was written by Northwood’s Chairman and CEO Tom McCullough, and was published by Barron’s magazine in April 2019.

‍Read the original article on Barron’s

‍In 1978, Prince Charles was 30 years old and had a bright future to look forward to. As Prince of Wales, he was Britain’s most eligible bachelor and the heir apparent to the British throne. His mother, Queen Elizabeth, was already into her 50s and had just marked the Silver Jubilee of her accession to the throne. It was widely assumed that before too long Charles would assume his birthright and become the King of England. Over 40 years have passed since then, and the Queen continues to happily and competently do her job. Prince Charles still isn’t king, and in fact is now the oldest and longest-serving heir apparent in British history. At 70 years old, he has still not attained the role he has been groomed for his entire life. The British monarchy provides a vivid example of a significant but not-well understood impact of our aging society, and one that affects many business families and wealth owners: how a family prepares for sustained competence. Sustained competence exists when an older, still-capable family patriarch or matriarch chooses not to step aside. This will only become increasingly important in the years to come as more people live long—and healthy—lives. The flipside of sustained competence is diminished competence. The ambiguity around diminished competence can lead to ugly family dynamics and even legal battles. There have been several recent examples, from allegations about Sumner Redstone’s mental competence as part of legal fights over control of Viacom and CBS to Donald Sterling losing control of the Los Angeles Clippers to his wife after an Alzheimer’s diagnosis. For our recent book, Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask, co-author Keith Whitaker and I consulted with Boston-based attorney Patricia Annino on both of these issues and possible steps that families can take to prepare for them. When a family leader isn’t ready to cede influence or income to the next generation, even as that next-generation approaches retirement age themselves, that requires a change in how wealthy families plan their financial futures.

Planning for sustained competence

Queen Elizabeth may be the most famous example of sustained competence, but it is becoming more and more common in family businesses the world over. To plan for it, family members will have to make choices at various stages of their life about their willingness to wait for their turn at the wheel, and consider what other options they might have. Some practical steps families can take include: Encourage family members to pursue meaningful interests early on in life, in case the sustained competence of the older generation means they never get their chance to run the family enterprise.Ensure that there are other key roles family members can play if they are not going to have the opportunity to take over key leadership roles.Schedule annual financial planning sessions to discuss the net worth of family members to be sure that each generation is sustainable and not dependent on gifts from other generations.Communicate openly. In a family that is economically intertwined, every action causes a reaction, and healthy communication among family members is essential.

Planning for diminished competence

Diminished competence is particularly tricky to manage because there is often no clear demarcation line between competence and incompetence. Both the elder and the next generation tend to put off planning for diminished competence as long as they can—usually until a crisis arises. Redstone, for instance, famously used to say he would never retire, refusing to clarify any succession plan. Unfortunately, delaying such decisions tends to make things worse for everyone involved. To prepare for someone in your family (particularly a key decision-maker) losing their personal competency, Annino offers the following advice: Spend as much effort planning for disability or incapacity as you currently spend managing your wealth or determining how it will be passed on. Do this as a family so that everyone knows what plans are in place. Family leaders should take the lead. Parents should ideally not put their children in the position of making the emotionally charged decision to forcibly take away their car keys or signing authority, but should initiate open discussions about these issues themselves, including who should have the right to your medical information and be empowered to make decisions on your behalf. Clarify with your family’s financial and legal advisors who they will become accountable to once the elder is disabled or incapacitated. Articulate who they have to report to and who has the right to review, approve and object. The key is to avoid destructive conflicts of interest where possible. Whether you are worried about sustained competence or diminished competence, it’s best to iron out the details early. From legal details like powers of attorney to more general issues like family communication, everything will go more smoothly if you start before the first sign of trouble. As in so much in life, it’s better to prepare for situations that may never come to pass than hope you are lucky enough to avoid them.

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