Intergenerational wealth transfer


Australia’s largest intergenerational wealth transfer. How can you prepare?

Article by

Australia’s largest intergenerational wealth transfer. How can you prepare?

Australia is on the cusp of the greatest intergenerational wealth transfer in history which includes people living in Newcastle and the Hunter. Between now and 2050 more than $3.5 trillion worth of assets will change hands in Australia.

In this article we look why it is important to plan for transferring wealth. We outline the practical steps to take so transferring your hard-earned wealth brings the most benefit to you and your beneficiaries. After you have left this earth but also while you are here to enjoy that experience.

People often plan too late for their wealth transfer. That’s because we are too busy generating wealth or the conversations are difficult and emotional. With the right advice and support you can transfer your wealth in a strategic, tax effective and satisfying way. That way you can give meaning to money and create the legacy you want to leave. 

Image: Pexels

How big is Australia’s intergenerational wealth transfer?

According to the Productivity Commission’s first comprehensive research report on wealth transfers in Australia in 2021, inheritances and gifts more than doubled since 2002 and could rise four-fold in real terms between now and 2050. Over the past two decades, the total value of wealth transferred in Australia was about $1.5 trillion, with inheritances making up 90% of that transfer. Between now and 2050 a staggering $3.5 trillion worth of assets will change hands.

The value of inherited assets in Australia is expected to quadruple from about A$120 billion per year to almost A$500 billion per year over the next 25 years. Baby boomers are expected to leave $224 billion in inheritances to Australian millennials and Gen Z.

The importance of a proper estate plan

You have spent a lot of time, energy and resources generating wealth, so it is worthwhile to spend time creating a proper estate plan. An estate plan is the best way to make sure you enjoy the benefits of your hard-earned wealth now and into retirement as well as ensure your wealth transfer is in line with your wishes after you pass away.

An estate plan is something you need NOW, while you are generating wealth. You never know what life is going to throw your way – sickness, an accident or the loss of capacity. More than a will, an estate plan brings together a range of legal documents to protect and manage your wealth.

If you have children under 25, an estate plan should also ensure you have the right people to raise your children if you die unexpectedly. Many people don’t think about who is best to do that and if it is important to provide for those people so they are financially able to raise your kids the way you would want.

Read more in our article on why estate planning is important for business owners.

Effective wealth transfer starts with three questions

When our wealth advisors and business advisors work with clients on wealth transfer, we start with three key questions.

  1. What are your assets? Identifying and structuring your assets so they can be transferred is the first step. For example a trust cannot be bequeathed.
  2. What are your wealth transfer goals? What legacy do you want your wealth to leave? What values drive your wealth creation and transfer? You need to consider your family situation and whom you want to benefit from your wealth and how you can h. Do you have philanthropic goals and do you want charities to benefit from your estate now or only after your passing?
  3. What are the risks to effective wealth transfer? The increasing number of blended families in Australia adds complexity to wealth transfer. Your plan may need to consider concerns you have about spendthrift kids or family members who have credit risks, or properly providing for people with addictions or physical or mental

A family wealth plan – strategic wealth transfer now and into the future

Starting to transfer wealth while you are generating it can be tax effective and allows you to experience and enjoy its benefits now. It helps ensure your wealth is put to its best use and gets built upon.

A family wealth plan helps give meaning to your money.

You, your children or other beneficiaries may benefit more if you transfer some wealth now rather than them inheriting it after you have gone. If you have an adult child struggling to save the deposit for a home or paying 6% on a mortgage, is it better to use your surplus cash that’s earning far less interest in a term deposit to help them now rather than leaving them that money in your will?

You may wish to start transferring wealth to your children, grandchildren or other loved ones on a yearly basis. This can help them to build a healthy relationship with wealth and skills in managing it. Our wealth management and business advisors often find it is best not to put rules around it, but you are on hand to coach and mentor them in using it wisely.  

The same principle applies to charitable giving or other philanthropic initiatives. We have clients that are enjoying seeing the difference their wealth transfer is making and getting to be involved in the charity or cause in other ways too.

Setting up a private ancillary fund is one flexible way to tax effectively support charities now. You could leave $1million to several charities after you have passed away. An alternative is to use proceeds of a property or business sale to support charities now in an ongoing way that helps their cashflow, while securing tax advantages for you at the same time.

Image: Pexels

Other tips for effective intergenerational wealth transfer

Her are some other tips to make sure you and others get the most out of your wealth and continue to build on that wealth.

  • Start planning now.
  • Talk openly and often with your family members and beneficiaries about your wealth transfer wishes and plan. Involve them in the planning.
  • Share the knowledge you have gained in building wealth with the people to whom you are transferring it.
  • Get help from people experienced in transferring wealth. That can be friends or colleagues as well as your financial planner, wealth advisor and business advisor.

Expert help with managing generational wealth transfer

Transferring wealth can be a sensitive and emotional process. Having an independent person to guide you or do the work for you can help you to stop putting off your wealth transfer planning and make the process easier.

An experienced wealth manager and business advisor can give you the right structure and questions to ask. They can facilitate those family conversations and bring together other parties that need to be involved in your wealth transfer plan for you. That includes your lawyer, financial planner, and accountant.

Our wealth managers and business advisors understand everyone’s perspective and have dealt with almost every family dynamic and business situation before. They are expert at helping you to structure your wealth transfer plan in a way that is tax effective and maximises the benefits you want, now and into the future.  

Have a question or need help managing your intergenerational wealth transfer?

We love questions. If you want to know more about Pitcher Partners Newcastle and Hunter’s private business and family advisory services or private wealth management services please contact us.

Tim Deamer CFP is a Partner and Private Client Advisor at Pitcher Partners Newcastle and Hunter. Tim is both a Certified Financial Planner and an SMSF Specialist Adviser. He works with clients, including multi-generational business families, to achieve their personal and business goals.

Pitcher Partner Insights

Get the latest Pitcher Partners updates direct to your inbox

Contact Expert