The Family Bank Pt. 1 – Succession Plans Fail

The average entrepreneur spends approximately eighty thousand hours building their business, and then only eight hours on succession planning. As a result, it is no shock to hear that the failure rate for wealth-transition plans is 70% today. That is to say, only 30% of successions are deemed successful after the first generation. Of the 30% successful transitions, only 30% will be successful during their succession to the second generation. Consequently, leaving a record of only 1/10 successful succession plans by the third generation.

“Rich people plan for three generations. Poor people plan for Saturday night.”

Gloria Steinem

Based on the above fact, a typical rule of thumb is that 9/10 families will completely deplete their wealth within three generations of the first wealth creator. Let this sink in. You work your entire life developing a business that creates huge amounts of wealth. By the time your great-grandchildren are grown and looking to take over the family business, there will be nothing left for them to build.

In short, this loss of capital is a direct result of a lack of core values. This opens up the downward spiral that results in the foolish expenditures that drain the family wealth.

By adding a simple practice called ‘the family bank approach’ to your succession and estate planning, you can ensure that future generations have the direction and values required to maintain and pass wealth on for generations to come.

How Does it Work?

To clarify, when we say succession and estate plans, we do not mean to say that this is something that you leave until your last breath to arrange. The ideas behind succession planning and the family bank approach require a lifetime of preparing future generations. Ensuring that the heirs to the family bank have a tool belt full of financial literacy and values that coincide with those of the whole family is of great priority.

The time commitment may sound alarming, but the good news is, this preparation can be done through lax family discussions. These conversations may take place during Sunday brunch, or family dinners. As a result, the goal should be to develop generational values, not focusing on ensuring everyone understands complex tax legislation. That’s what your advisors are for.

The family bank approach recognizes that the traditional method of succession and wealth-transition planning, which focuses on controlling financial assets and minimizing and deferring taxes, gets the order of priorities backwards. The family bank approach pays close attention to the human elements of the family, first. Then explores financial strategies and structures that fit the family’s needs.

For instance, some of these strategies may include lending money from the family bank to a grandchild who has a passion for flying but lacks the resources to attain costly pilot training. Their education would likely be considered a good investment for the family bank because it works to build the human capital of the family. Because this investment will result in the future expansion of the bank, the bank trustees would likely lend the cash. For a technical analysis of how this may work, visit our recent post “Farm Financial Planner: Lending Your Cash to the Kids“.


As the facts suggest – wealth transition plans and business successions fail most of the time. Luckily, we are offering a potential solution for our valued readers.

Stay tuned to `The Family Bank`, our new blog series that will offer the information required to develop a successful family bank structure. This will help maintain the family wealth and keep it growing for generations to come!

Have any questions or thoughts? Post them below.

Family Bank Pt. 2 – The Family Bank Approach

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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy