There’s a well-known Chinese saying that goes,“a rich family can’t maintain its wealth for more than three generations”. In fact, that saying is not totally groundless. A family business study made by J. Astrachan indicates that 30% of family enterprises can survive to the 2nd generation, 9% to the 3rd but only 3% to the 4th. The study shows that intergenerational succession can be the leading killer of wealth unless there is a professional system to help a careful planning and thoughtful arrangement.

It’s been more than 43 years since the reform and opening-up policy was implemented in China. During this period, many economic miracles have occurred and plenty of wealth has been created. As “the first generation of wealth creators”, today’s ultra high net worth individuals have been able to enjoy their current wealth and social status after overcoming many challenges. As the first group of people to take advantage of the reform, they were the first to accumulate enormous wealth. Likewise, they’ll be the first to face the challenge of safeguarding and handing down their wealth to the next generation. The cost of failing to do so, however, is also extremely high. In the 5 to 15 years to come, about 90% of the first generation of Chinese   wealth creators will be faced with the challenge of preserving and growing their family wealth. As the first generation to pass down their wealth, they have no precedent or previous experience to follow. In these circumstances, their chance of successfully passing down their family wealth to posterity is unlikely to reach 30%.

On top of that, this first generation of ultra high net worth Chinese will have to experience this new economic normal. In contrast to the 10-12% annual growth previously enjoyed, China’s GPD growth rate will drop to 5-7%. With the increasing industry competition, many family enterprises are suffering from overcapacity, and they’ll have to transfer from “old economy” to “new economy” industries. Thus, these enterprises will face great challenges in the process of reforming.

Fortunately, with the development of information globalization, ultra high net worth Chinese families now can access experience in preserving and growing family wealth from other countries. Some rich families in North American and Europe have broken the long-believed curse that “a rich family can’t maintain its wealth for more than three generations” and have passed down their wealth to the 6th and even the 7th,8th generation. Undoubtedly, the inheritance system established in the process will help preserve and grow their family wealth for more generations in the future. Despite the different political and economic situations of different times, there are some common rules for rich families to follow to build a sustainable family succession structure.

These rules include: the desire to pass down the family fortune from generation to generation; changing the mode of thinking, whereby family inheritance doesn’t only mean passing down the family-owned enterprise and wealth to the next generation; and, even more importantly, institutionalizing a “family culture and value” in family members’ daily behavior through overall planning, proper family discipline and equitable legal and family management structures.

The secret weapon to achieving the above purpose is the professional Family Office service. Ultra high net worth Chinese will be more likely to avoid making mistakes and succeed in passing on their legacy if they adopt the professional advice of Family Office experts, make family inheritance plan and carry them out.

The HMCFO once analyzed the cases of more than 40 super-rich families in the world.  The names of these families or enterprises have become a synonym for wealth, success and fame. Every family has a story of creating its family legacy and establishing an everlasting enterprise to share.

Let’s discover those families’ secret of “staying rich for more than three generations”.