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What is the main cause of concern among wealthy families around the world? Our research shows that families who are remarkably wealthy are keen and deeply concerned about their families’ welfare in the future. They don’t focus only on managing investments of the financial assets they own. “Capital preservation” is commonly associated with family goals and the situations at hand. They are more concerned about financial and human “capital”, and there exists sufficient evidence that shows it’s good to create a plan for maintaining and increasing both.
Innovators of Private Family Banking and Succession Planning
In spite of all the resources, time, and hard work employed in accumulating wealth and turning it to wise investments, most families encounter unprecedented setbacks. Whether it’s “mud to mud” “grass to grass,” or “zero to zero,” they all have the same meaning. A family’s financial wealth mostly disappears in a period of three generations or less after it piles up. Research indicates that this unfortunate outcome happens at a rate of 70%.
The typical entrepreneur spends just 8 hours planning for succession having spent around sixty -five years establishing their business. It’s no wonder plans for transitioning wealth fail at a rate of 70%. This means that just 30 percent of the family successions reach the second generation and only 1/10 of the successful successions from the second generation get to the third generation.
According to the above statistics, it’s evident that only 10% of families will maintain and preserve their wealth inside the initial three generations that the principal wealth creator lived. The remaining 90% depletes the property and assets within the first and second generations. Caption this: you work hard and toil your whole life creating and growing a company that brings you a lot of riches. When your great-grandsons and great-daughters are fully grown and ready to preside over the business you started for them, they have to start from scratch because the wealth you had amassed for them will be long gone.
Lack of discipline is the main reason leading to the loss of the business’s capital. Ignorant spending and misinformed financial decisions strain and eventually result in declined family wealth.
This is a practice to ensure that the coming generations will know and understand the process of maintaining wealth and at the same time preserving it for the next generation. It’s added to your succession planning.
Deciding when to plan for succession is a major challenge. Deteriorating health and calls for selling the business may call for a quick exit master plan. It’s advisable to start building the foundation of the exit strategy now because it will be easier to implement the plan when you decide to leave.
The long-term plan will be beneficial to the incoming business owner as they’ll learn from you, the incumbent, on how to propel, maintain, and preserve the wealth for the future generations.
With a few small modifications, private family banking and infinite banking are essentially the same tactic. The salient points are as follows:
The main concept is to use a well-structured whole life insurance policy to become your own “banker” by borrowing against the policy's cash value to finance significant investments, purchases, and costs.
In both cases, a high cash value whole life insurance policy—typically from a dividend-paying mutual insurance company—is overfunded. The objective is to quickly increase the policy's cash value.
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