Families such as Strauss, Wertheim and Carasso have struggled to divide shares, authority and assets across generations; without careful succession planning, disputes can destroy both businesses and wealthThe founding generation built the business, but what happens when control passes to the next generation — and later to the grandchildren?Behind every billionaire and millionaire in Israel stands a family. Some belong to the generation that helped build the state and, as they grow older, are passing the baton to the second and third generations — their children and grandchildren. Naturally, the number of people with control over the business grows, creating no shortage of internal family disputes that have turned into battlegrounds and led to the loss of fortunes or the breakup of families. Among the causes are conflicting interests among those who control the company and poorly managed succession.GalleryStruggling over the inheritance; 90% lose the family fortune by the third generation (AI-generated illustration)One study on the subject, conducted by the Williams Group, followed 3,200 wealthy families over 20 years and found that 70% had lost their wealth by the second generation and 90% by the third. The researchers concluded that “the problems did not stem from failures in taxation, governance or preservation, but from the collapse of trust and communication within the family unit and from heirs who had not been prepared for financial responsibility.”“Inherited wealth is a real handicap to happiness,” said William K. Vanderbilt, grandson of the man who was once the richest person in the world. The Vanderbilt family, which built a railroad empire worth $100 million in 1877 — the equivalent of billions today — lost its entire fortune in less than a century. At a 1973 family reunion attended by 120 descendants from the third generation onward, not a single millionaire remained.Awareness of the importance of properly transferring wealth between generations exists worldwide. In Scotland, for example, there is a saying: “The father buys, the son builds, the grandson sells and his son begs.” Like similar expressions, it points to the same basic pattern: The first generation builds wealth from nothing through hard work and saving. The second generation, having witnessed its parents’ efforts, still understands the value of money and usually preserves or even increases it. But the third generation, raised in abundance and detached from the origins of the wealth, tends to squander the inheritance.That is why a growing number of management and financial experts recommend planning an orderly retirement process for the founder and carrying out the transfer during the owner’s lifetime as part of a structured family wealth plan. The goal is to transfer property, assets, rights, businesses and other interests to descendants in a thoughtful and efficient manner, fulfilling the owner’s objectives legally while minimizing taxes and other costs and, ideally, preventing legal disputes and family conflict.Studies examining the causes of lost wealth have found that families invest enormous resources in tax planning and asset transfers but neglect to prepare their heirs to manage the fortune. Part of the problem stems from a lack of communication and reluctance to discuss wealth. Many wealthy people admit that they disclosed little or nothing about their finances to their children, who then reach the inheritance stage unprepared, without knowledge, values or a sense of responsibility.Dr. Nava Michael-Tsabari Photo: Shiran Carmel“There is no doubt that the retirement and planning process must be carefully structured, and that takes time. But in my view, it is a mistake to speak of an ‘intergenerational transfer’ as though it were a single point in time,” said Dr. Nava Michael-Tsabari of Tel Aviv University’s Coller School of Management, who heads the Raya Strauss Center for Family Business Research.“In family businesses, that language can even be insulting to the founding generation because it effectively pushes the founder to leave or retire, and that is usually not the intention. The business is the founder’s baby, the creation of a lifetime, and founders generally do not intend to retire in the conventional sense.“Founders typically work until their final day and often continue coming to work well into their 80s. There are many such examples in Israel as well. The process should begin with years of intergenerational cooperation, with the founder and the children working together in partnership.“There must be advance planning about how the family wants the future to look, what values matter and what agreements should be reached. Families should consider who may eventually work in the business and agree on rules for transferring ownership to future generations.“Today, many professionals help families formulate charters and agreements of this kind. It is important to involve all stakeholders and maintain fairness. Families should avoid dramatic steps in a will that is only opened after the founder’s death and should not sweep problems and disagreements under the rug because they will eventually return as far more serious conflicts.”There is no doubt that the founding generation wants to preserve its wealth and transfer it in an orderly way to the second generation and then to the third. Sometimes it succeeds, and sometimes it does not.One example of an equal division among children that survived the second generation but gave rise to disputes among the grandchildren is the Carasso family, one of Israel’s wealthiest families and the controlling shareholder in automobile and real estate companies worth billions of shekels.Maccabi Carasso Moshe Carasso, who died in 1962, founded the group and divided his shares equally among his four children. For about 40 years after his death, his eldest son, Haim, controlled the family business without challenge.But when the third generation entered the picture, dissent began to surface. In 2000, after the death of Haim’s brother Aryeh, Aryeh’s sons, Maccabi and Yoel, rebelled against Haim and demanded the appointment of a salaried CEO, arguing that Haim’s management style was authoritarian and unsuited to the 21st century.After seven years of disputes, the brothers prevailed and the company appointed an outside CEO, Itzik Weitz.That did not resolve all the company’s problems. Several years later, Maccabi Carasso, who owns 12.4% of Carasso Real Estate and is known for his campaigns for transparency and proper governance in the family companies, led another family dispute that reached the courts. He alleged that some relatives holding positions in the company were harming it through improper conduct.After years of countersuits, the dispute ended about five years ago. The family issued a statement saying: “The members of the Carasso family, grandchildren of the late Moshe and Tzipora Carasso, who were raised on the values of family unity, are pleased to announce that they have succeeded in overcoming the disagreements that arose among them.” For now, the family front remains quiet.Industrialist Stef Wertheimer, one of Israel’s wealthiest people, who died about a year ago, distributed his wealth to future generations during his lifetime. Although the family does not disclose figures, it is known that when Iscar was sold to Warren Buffett for $4 billion, each of Wertheimer’s three children received hundreds of millions of shekels. Today, his children, 10 grandchildren and more than 20 great-grandchildren are worth millions and, as far as is known, live in harmony.The late Stef Wertheimer; distributed his wealth during his lifetime (Photo: Avihu Shapira)By contrast, there are examples of unequal succession that created problems in the second generation and, from there, in the third.In 2011, brothers Yuli and Sami Ofer died, leaving behind a vast business empire. Sami’s assets were inherited equally by his two sons, Idan and Eyal Ofer. Yuli’s assets, however, were divided unequally between his children, Liora and Doron, leading to bitter and highly publicized disputes.The Wertheim family offers another example. In 2012, family patriarch Muzi Wertheim, owner of the Wertheim Group, one of Israel’s largest business groups, transferred the family assets, estimated at billions of shekels, to his two children, Dudi and Drorit, during his lifetime. The division was unequal: roughly two-thirds went to the son and one-third to the daughter. Unsurprisingly, the arrangement led to serious conflict between the siblings after his death.The story of the Strauss family, now worth more than 13 billion shekels, began with a small dairy farm established exactly 90 years ago by Hilda and Richard Strauss in the yard of their home in Nahariya after they immigrated from Germany.In 1975, ownership of Strauss passed to their son, the late Michael “Miki” Strauss, who had already become a dominant figure in the company. His sister, Raya Strauss Ben-Dror, also shared management responsibilities. She later retired from the company and sold her shares in 2005 following Strauss’ merger with Elite. Since then, she has devoted most of her time to philanthropy, social entrepreneurship in Israel, business investments and the study of family businesses.Ofra Strauss; took the reins of the family company (Photo: Shaul Golan)“Years ago, when my mother learned that only 6% of third-generation family businesses survive, she was horrified and decided to begin dealing with the issue of orderly intergenerational succession. She immediately understood the implications and approached her brother, Michael,” said her daughter, Michael-Tsabari.“At the time, people in Israel did not understand the importance of thinking about future generations. Michael did not think about it either. He told my mother that he did not understand why planning was necessary since they were getting along. But eventually he was persuaded, and it was a good thing he was.”In 2001, Michael’s daughter, Ofra Strauss, was appointed chairwoman of Strauss. Michael-Tsabari chose to sell her shares in the company and focus on the academic study of family businesses. She is now recognized in Israel and abroad as an authority in the field.“When I began working in this area about 20 years ago, people raised their eyebrows,” she said. “Today, the field is recognized and seen as highly important to the country.”What characterizes family-run companies?