Study Reveals Ultra-High-Net-Worth Family Businesses Are Not Implementing Succession Plans and Asset Protection Strategies

NEW YORK, June 11 /PRNewswire/ -- A new study sponsored by U.S. Trust, Bank of America Private Wealth Management finds that the majority of owners of ultra-high-net-worth (UHNW) family businesses are leaving their professional and personal interests vulnerable through inadequate business succession, asset protection and estate planning. While these families are highly successful in building and managing their businesses, they are often less successful when it comes to transitioning their companies from one generation to the next, with only 15 percent of family-owned companies lasting past the second generation. Conducted by Prince & Associates, Inc. and Campden Research, the study surveyed 242 second- to third-generation business owners with interests valued at a minimum of $300 million, and mean value approaching $730 million.

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Released today, these findings are part of a new study entitled Protecting the Family Fortune, one of the most comprehensive reports to examine the complex issues and behavioral traits informing succession and estate planning, and asset- protection strategies related to ultra-high-net-worth family businesses. The research uncovers the wealth planning areas these families need to address and provides the beginning steps for families and their advisors to consider when implementing sophisticated planning strategies.

"Owners of ultra-high-net-worth family businesses often have a team of advisors focusing on an array of needs such as wealth management, tax strategies and succession planning, without addressing the bigger picture," said Chris Zander, managing director and head of the Multi-Family Office (MFO) Group at U.S. Trust. "Given the near-term and long-term complexities with managing a successful family business, it is crucial that these families think about the wealth tied to their business and their personal fortune in a holistic, strategic manner."

Behavioral Profiles Discovered: Business-focused vs. Family-focused

The study identified two distinct groups based upon behavioral data: Business-focused and Family-focused. The Business-focused segment prioritizes the needs of the business above those of family members. In contrast, the Family-focused segment uses the business as a mechanism for the family to prosper, and to address family issues. The study found that 38 percent of owners were identified as Business-focused, giving little consideration to family financial concerns when making business decisions.

"Business-focused owners of ultra-high-net-worth businesses tend to be more successful," said Russ Alan Prince, president of Prince & Associates, Inc. "This segment tends to own businesses with much greater net worth, as well as create and implement succession and estate plans in greater numbers than their Family-focused counterparts." While direct causality cannot be determined, the study revealed that far greater financial resources are controlled in circumstances where business decisions take precedence over family concerns.

Succession Plans Collecting Dust

The study revealed that while a large majority of owners of UHNW family businesses have wealth transfer plans in place, most of these plans - both professional and personal - have lapsed.

    --  While over three quarters (76%) of owners have succession plans, only
        38 percent implement them, inadequately addressing issues of
        succession
    --  Most individuals with succession plans in place are not focusing on
        tax-mitigation issues (73%), even though nearly all participants (93%)
        report a desire to lower the tax burden associated with transferring
        the business

"Most family business owners do have basic succession, trust and estate plans; however, too often, they are sitting on shelves gathering dust. Not only do these families need to act on implementing and updating their wealth planning strategies, they need more sophisticated strategies to better protect their wealth," said Mindy Rosenthal, managing director of Campden's North American Business and co-author of the research.

Asset Protection Strategies Missing

A significant portion of owners of UHNW family businesses desire to maintain control of the business and are concerned with protecting their wealth, yet fail to create asset protection plans, which provide wealth structuring strategies that maximize tax efficiencies and mitigate risk.

    --  Almost nine out of 10 (89%) business owners were "very" or "extremely
        concerned" about protecting the family's wealth
    --  However, nearly three quarters (73%) of them do not have asset
        protection plans in place

"Most owners of ultra-high-net-worth family businesses don't implement strategies for asset protection in large part because no one has educated them about such options," Rosenthal noted.

Estate Plans Outdated

The treatment of estate planning mirrors that of succession planning, with the majority of owners creating estate plans without updating them often enough to keep them viable.

    --  Over three quarters (78%) of owners have personal estate plans;
        however, 89 percent have not updated them after a life-changing event
        such as marriage, birth or death rendering the plan obsolete
    --  More than half (54%) of participants lacking estate plans reported
        difficulty dealing with their own mortality, and one quarter (25%)
        cited a lack of time as reasons for not creating a plan

Zander added, "The professional and personal financial concerns of this unique subset of business owners are more vulnerable to life events and legal proceedings, and must be addressed if they want to protect the financial security of the next generation."

About the Protecting the Family Fortune Study

The study surveyed 242 second- to third-generation wealthy business owners with business interests valued at a minimum of $300 million and mean value approaching $730 million. The objective of the study was to examine the success rate of family-run businesses in the transition phase from one generation to the next and uncover wealth planning issues that urgently need to be addressed.

All of the businesses in the study are controlled by a single family owning at least 60 percent of the business. All owners are senior officers within their respective family businesses with a seat on the board of directors and a personal equity share of 10 percent or more. All owners are considered wealthy for the purpose of this study, with a personal net worth of at least $5 million outside the equity stake in the business. For more information on the results of Protecting the Family Fortune, visit Campden Media at: http://www.campden.com//ptff .

About Campden Media

For almost two decades, Campden has been a unique and indispensable source of information for large, global family businesses and their advisors. It delivers practical, solution-oriented information through conferences, seminars and a range of focused publications. Through events such as its exclusive family meetings series and journals such as Families in Business and Private Wealth Management, Campden has become a truly independent and impartial facilitator of dialogue between business and financial families, substantial private investors, executives from private investment and family offices, family businesses and their close advisors.

Campden Research is a business that builds off expertise in the market and supplies market insight on key sector issues for ultra affluent families and their advisors.

About Prince & Associates

Prince & Associates, Inc. is a leading research and consulting firm to the high-net-worth and their advisors. Russ Alan Prince, president of Prince & Associates, Inc. is the author of more than 35 books on private wealth and is a highly sought counselor to elite financial practitioners.

About U.S. Trust, Bank of America Private Wealth Management

U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization in the United States providing unsurpassed resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients can also benefit from access to resources available through Bank of America and its affiliates - including capital markets products, large and complex financing solutions, and its extensive retail banking platform.

The Multi-Family Office Group at U.S. Trust draws upon institutional- quality capabilities to address the highly sophisticated needs of individuals and families with substantial wealth. Clients are served by highly experienced advisors who provide a range of specialized family office services, including investments, single-stock management, integrated planning, philanthropic management, succession planning, specialty asset management, financial administration, compliance and family stewardship.

About Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving more than 59 million consumer and small business relationships with more than 6,100 retail banking offices, nearly 18,500 ATMs and award-winning online banking with nearly 25 million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in more than 150 countries and has relationships with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Fortune Global 500. Bank of America Corporation stock NYSE: BAC is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., a wholly owned subsidiary of Bank of America Corporation.

Bank of America, N.A., Member FDIC.