Many Americans consider starting and running a successful business to be a key part of the “American Dream,” but these entrepreneurs don’t necessarily want their own children to take up where they left off. When it comes to succession planning, half (52%) of business owners say they do not want their children to inherit and run the business, according to a recent Wells Fargo study.
On behalf of Wells Fargo, Versta Research conducted a national online survey of 1,008 “wealth creators,” defined as U.S. adults aged 50 or over who have at least $1 million in investable assets, excluding those who inherited most of their assets.
“As we work with clients, they tell us that reasons vary from a lack of confidence that their children will keep the company on solid footing, to believing large inheritances can be a disincentive to earning one’s own financial success,” said Michael Liersch, head of Advice & Planning for Wells Fargo Wealth & Investment Management. “More parents are recognizing their children simply are not interested in joining the family business and are not pressuring them to do so. Knowing what your children are interested in and where their strengths lie is key to effective succession planning.”
Among parents, nearly all (94%) want their children to forge their own path, rather than follow in their footsteps.
“My father originally planned to sell our 110-year-old family business, Pioneer Linens; yet a year before he passed away, he named me as successor—and it’s been my honor to continue the legacy of both my father and grandfather,” said Penny Murphy, third-generation business owner. “My brother, on the other hand, was the recipient of my father’s real estate. We are grateful that our father thoughtfully created an equitable estate plan that aligned with our respective interests.”
Where the wealth comes from
Nine out of ten (90%) wealth creators attribute their financial success specifically to hard work and determination. In addition, two-thirds (63%) of wealth creators cite the advantages of a good education, and almost half (43%) acknowledge the importance of living in the land of opportunity, while a quarter (24%) acknowledge the role of luck.
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Helping to move this success down through family lines tends to get trickier for some, though. Three out of four wealth creator parents (73%) believe they have succeeded in passing down their financial values, and (75%) feel they have done a good job raising their children to be financially successful on their own—yet almost half (44%) worry about their children not knowing how to build wealth of their own.
In line with wealth creators expressing concern about their children’s ability to build their own wealth, they also said they provide a good deal of financial support to their adult children, with four out of five (81%) saying they will bail them out of financial trouble. Although 88% of Gen X parents said they believe that wealth can ruin children (compared to 81% of respondents overall), nearly half (48%) acknowledge they tend to overdo it when it comes to giving things to their children (compared to 40% of respondents overall).
Most wealth creators help their adult children financially in multiple areas:
|Travel or vacations||46%|
Notably, parents who said they help their adult children with houses rises to 47% among those with $5 million or more in investable assets (compared to 27% of respondents overall).
And while a large majority (70%) want their children to live up to their family’s standards of wealth and success, nearly a third (30%) report it has been hard to transmit their work ethic to their children—and this is higher (40%) among Gen X parents.
“Family business owners may be tempted to transfer ownership as an incentive for family members to join the business,” said Bob Marshall, business growth strategy executive at Wells Fargo Bank, N.A. “While well intentioned, these transfers may lead to unintended consequences, especially if the family member does not have the required skills, engagement, or desire to take over the business.”
Two out of five (39%) say their business has been an important source of meaning and purpose in their lives, and one in six (17%) say it is part of the legacy they want to leave.
“Whether the family discussion is about estate planning or business succession planning, what’s important is that everyone is aligned and there are no surprises,” added Liersch. “Without a thoughtful conversation and formal plan, assumptions can be made and disruption to the family dynamics are highly likely.”