Securing the family legacy: Strategies to mitigate generational transition risk

Authored by RSM US LLP

The transition of wealth and leadership between generations poses unique challenges for a family, their family office and their business and investment interests (collectively referred to as the family enterprise). These risks go beyond financial concerns, often focusing on obstacles that threaten successful generational transitions and the preservation of the family’s legacy.

Ignoring these risks can jeopardize not only the family office and the broader family enterprise’s continuity but also the family legacy it was built to preserve. By proactively addressing these challenges as part of a strategic and holistic approach to enterprise risk management, family offices can facilitate generational transitions by setting a foundation for sustainable growth, harmony and unity.

Understanding the ‘why’ behind transition risks and how to mitigate them

Transition risks can surface in multiple ways, and without a clear and adaptable strategy, family offices risk disengagement, misalignment and, ultimately, division among family members.

Here are seven common risks and why family offices must prioritize them:

1. Family member disengagement

One of the biggest threats to continuity is the disengagement of younger generations. Often, a family office is designed to meet the specific needs of its founders (aka generation one or G1) or their immediate successors (G2). However, if it fails to evolve and engage later generations, family members may view the office as an irrelevant institution lacking personal connection. When G1 or G2 is no longer in a decision-making role, G3 may question the purpose of the family office, wondering why it’s necessary if it doesn’t align with their needs.

Without meaningful engagement and empowerment, family members may eventually disengage or pursue alternative investment structures better suited to their preferences, resulting in a loss of unity and a diminished family legacy. Alternatively, establishing clear communication and relationship-building programs with younger generations can foster commitment and alignment of interests. By involving the younger generation early and ensuring the family office’s offerings reflect their expectations, family offices can foster a long-term sense of belonging and purpose.

2. Lack of preparation

Often, at the behest of current generational leadership, family offices thoughtfully and selectively share detailed financial information with the NextGen family members to aid in fostering a strong sense of stewardship and responsibility. However, this approach often leads to a lack of transparency by the NextGen family members and can leave them unprepared. The best practice is to start education early and be transparent to facilitate not only financial literacy but also the “soft” skills necessary for effective leadership, conflict resolution and personal purpose.

If heirs reach their later years without understanding the family wealth’s scope and the rationale behind the structures that support it, managing it can become overwhelming. Unprepared heirs may face challenges in understanding the structural complexity they are tasked with managing, lack a network of trusted advisors to support them or be unsure of how to engage with the existing advisory ecosystem. This lack of preparation can lead to unintended financial consequences or disruptions in continuity in the short term. As a solution, offering education that addresses financial and non-financial capital allows NextGen family members to develop a deeper understanding of the family’s assets and responsibilities. Mentorship programs, leadership training and even conflict-resolution guidance can help bridge knowledge gaps and foster confident decision makers.

3. Intergenerational conflicts

As families grow, generational and cultural differences become inevitable. Each generation has its own set of values, priorities and beliefs, which can clash with those of previous generations. Differences in philanthropic goals, spending priorities or even political beliefs can create rifts. As families expand, the potential for conflict only increases—more voices mean more differing perspectives.

Ignoring these differences can lead to fractured relationships, divided wealth and even costly legal disputes. However, effective governance structures emphasizing open dialogue and mutual respect can help manage these conflicts. Establishing family councils, holding regular meetings and implementing conflict-resolution protocols help ensure that every family member feels heard, which can mitigate misunderstandings and promote cohesion.

As a best practice, family offices should consider working with an experienced advisor to facilitate meetings. A neutral third party reduces administrative burdens for the family and family office, preserves the family’s governance role and helps prevent power dynamics, such as dismissing ideas in ways that derail meeting objectives.

4. Marital and divorce impacts

Marriages and divorces can also introduce complexities to family offices. Prenuptial and postnuptial agreements, while sensitive, serve as essential tools for protecting family assets and ensuring stability across generations. It is critical to approach these conversations from a protective standpoint rather than a lack of trust, emphasizing that their purpose is to protect the family’s legacy. Importantly, this approach does not reflect the individual’s relationship with their significant other but rather a protective measure to preserve family continuity and assets.

Equally important is educating spouses who marry into the family. Joining a family of significant wealth can feel overwhelming, particularly when navigating complex ownership and governance structure—especially for those unfamiliar with family offices. Ensuring a smooth, welcoming transition is key, as spouses often become parents of future heirs and play integral roles in the family’s continuity.

Spouses and significant others should feel welcomed, valued and confident that governance structures are flexible enough to leverage their unique skill sets and perspectives in appropriate ways if they desire to participate. By fostering their engagement early and aligning expectations, family offices can not only prevent spouse disengagement but also encourage them to play an active role in cultivating the commitment of future generations. When spouses feel connected to the family and family office, they are more likely to help instill the family’s values and legacy in NextGen members, strengthening unity and ensuring long-term engagement.

5. Nebulous succession plans

In many family offices, succession remains an unresolved issue. The topic is often avoided not only because of its connection to mortality but also due to time constraints, the fear of relinquishing control, or concerns about losing personal purpose. It is especially true for those who have dedicated themselves to building the organization to where it is today.

Another reason succession planning is often avoided is that it raises broader questions about the purpose of the family office itself. Succession planning is not just an event where the next leader is identified; it’s a process that requires significant strategic planning. It goes beyond leadership transition, serving as an opportunity to redefine the family office’s strategy, services and operating model to align with the evolving needs of the family.

When there’s no clarity on succession, it can lead to conflict, especially if multiple family members have expectations of leadership or expect to play a role in determining the next leader. The 2024 RSM Family Office Operational Excellence report, which surveyed 100 family offices across the U.S. and Canada, highlighted trends in succession planning, or a lack thereof, which speaks to the need for proactive planning.

Of the single-family offices surveyed in our latest report

Another 20% indicated they have a verbally agreed-upon plan, and the remainder (9%) have an informally agreed-upon plan.

A lack of clarity around succession can create internal disputes, power struggles and even jeopardize the continuity of the family office. Conversely, a transparent, well-structured succession plan that clearly defines roles, responsibilities and the process for identifying future leaders minimizes uncertainty and the potential for conflict. Importantly, succession planning should not be approached in isolation; it is an opportunity to engage family members, through appropriate governance, in meaningful discussions about the family office’s purpose, strategy and future direction. By involving the family early, fostering alignment and encouraging collaboration, family offices can smooth leadership transitions and position themselves to meet the evolving needs of future generations.

6. Values misalignment

Misaligned values among family members can fuel intergenerational conflicts. As each generation faces different social, political and economic conditions, their values may evolve, affecting philanthropy, investment and spending decisions. Even siblings may hold vastly different beliefs, and this divergence only grows across generations.

Misaligned values can lead to fragmented decision making, hindering the family office’s ability to operate effectively and cohesively. However, building a values-based mission and vision that resonates across generations can unify family members around common goals. This mission and vision should inform the design of the family’s governance and ownership structure, ensuring it reflects the family’s purpose while remaining flexible enough to adapt over time.

These structures should also allow for diverse perspectives— from the family as a whole, individual family branches or specific family members—to inform investment and philanthropic strategies. This flexibility may require the creation of additional structures or distribution policies that enable individuals to invest and give together, as well as independently, in ways that align with their personal values while maintaining overall family cohesion.

Equally important is NextGen education, which should emphasize family history, mission and values from an early stage. By fostering an understanding of these principles—combined with prior generations serving as role models—families can instill a sense of stewardship and purpose in future generations. A shared foundation of values, supported by a dynamic and adaptable governance structure, can help families navigate differences, maintain unity and position the family office for long-term success.

7. Wealth dilution fears

As wealth is divided and passed down through generations, there is a risk of dilution by branch and individual family members, even if the overall wealth itself is not diminishing. Between G4 and G5, the family’s wealth may become significantly diluted, potentially affecting future generations’ lifestyles and the family office’s ability to sustain its operations.

To address this, the family office should regularly project the transfer of wealth across generations, a task that can be complicated by complex, tiered ownership structures. Incorporating liquidity and tax planning into these models is critical to assess the level of growth needed to sustain (or supplement) family member lifestyles, meet financial and/or regulatory obligations and continue funding family office operations.

Strategic planning plays a key role in balancing the goals, objectives and needs of family members with the capital expenditure and operating expenditure requirements of the family office. While the capital can continue to grow, it may not always grow at a pace sufficient to meet evolving family needs. By implementing sustainable investment strategies, growth plans and conducting regular assessments of the family’s financial strategy, family offices can better adapt to changing market conditions and family dynamics, enabling the preservation and growth of capital for future generations while emphasizing NextGen education on both financial and non-financial capital to raise responsible stewards and well-rounded individuals.

The takeaway

For family offices, generational transition risks are not merely operational or financial challenges—they are rooted deeply in the family’s legacy, identity and future vision. Each risk area, whether disengagement, succession or wealth dilution, can erode the very foundation of the family office if left unaddressed. Therefore, proactive planning and open communication are essential to managing these risks effectively.

By viewing these risks through the lens of enterprise risk management, family offices can establish structures and processes that not only protect the family’s wealth but also reinforce its unity and purpose across generations. Safeguarding a family legacy requires building resilient structures—from transparent succession plans to shared values and education initiatives—to navigate generational shifts effectively.

This article was written by Chris Dickson and originally appeared on 2025-01-27. Reprinted with permission from RSM US LLP.
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