Multi-Generational Wealth Planning for Billionaires: This generation or next?

The saying "shirtsleeves to shirtsleeves in three generations" remains as true today as it was a century ago. Kids, taxes, bad investing and the debauching effects of wealth over the generations have not changed.

An observant wealth expert sent us a data analysis combining the new Forbes richest family list and the Forbes billionaire's lists to figure out how many of today's billionaires are first generation, second, third and so on. The results prove the "shirtsleeves" adage—that family wealth seems to hit a cliff at the third generation.

The study is not scientific—there is some subjective analysis in defining "first generation" or "second generation" wealth (Donald Trump's dad was rich, for instance). And it's difficult to know which generation controls the wealth.

But of the 483 billionaires analyzed, 321—or about two thirds—are first generation. Only 20 percent were second generation. Less than 10 percent were third generation, while only 13 families made it to the fourth generation, seven made it to the fifth generation and two made it to the sixth generation (Congratulations Whittiers and Yuenglings!).

Of course, the success rate depends mainly on the size and nature of the fortune. The Whittiers wisely set up their own family office-wealth management firm that has invested well. And the Yuenglings have the enduring allure of beer to thank.


Source: CNBC



The 2015 Billionaires Report said data analysis of 1,300 billionaires from the last 19 years showed most US and European self-made billionaires choose to keep their businesses that built their wealth (60%), with one-third (30%) selling pieces of their business via an IPO or trade sale, while 10% cash out.

Family businesses owned by multi-generational billionaire families, especially in Europe, were a key pillar of economic development, the UBS/PwC report said.

"The analysis of the underlying granular multi-generational billionaire data reveal the critical role that a legacy built on a successful family business plays in the economy," it said.

"After a phase where this model had been out of fashion and often pronounced as doomed, it currently shows a strong comeback and is used as a possible role model of long-term sustainable business performance."

It quoted a global survey of large family firms that found 57% of European billionaire families and 56% of Asian succeed to manage the business after the patriarch retires. By contrast, only 36% of US families do, instead handing over to an external manager.

The report highlighted that as almost two thirds of billionaires are over 60 years old and have more than one child they are being forced to transfer their wealth effectively. Transfer either to future family generations via a family business, family office, foundation, philanthropic causes or some combination were the main transfer mechanisms.

The effects of 'generational algebra' were also flagged in the study. It created a hypothetical case study of a billionaire family where each member of a family had three children, by the second generation there were nine family members and by the fifth there were 243. Correspondingly, a sum of $1 billion diluted to $333 million for each child when it's passed on to the second generation. By the fifth generation, each child inherited $12 million.

The report suggested that the bulk of billionaires who were cashing out of their businesses became financial investors. Of these, many were setting up sophisticated family offices that have professional managers and governance structures that will span the generations.

Some family offices, which formerly focused on wills, trusts, bill paying, and tax strategies, are beginning to take a more comprehensive role in managing family companies which make up the family's wealth, it reported.

The 2015 Billionaires Report also forecast that both the 'Giving Pledge' and individual contributions will drive an upsurge in philanthropy in its many nuances – endowment, socially-focused investing, the arts and education – over the next 10-20 years.

The survey of 1,300 billionaires analysed data from the last 19 years (1995-2014) across the 14 largest billionaire markets, accounting for 75% of global billionaire wealth. It included face-to-face interviews with more than 30 billionaires.


Source: CampdenFB

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