There are so many super scary stats highlighting the need for effective intergenerational wealth transfer. I could carry on about being an aging population (who wants to live to 130); how the baby boomers currently hold 55% of Australia’s wealth which will result in some $3 trillion dollars changing hands over the next couple of decades; and most powerfully how 70% of intergenerational wealth transfers fail in achieving their full objectives because of a lack of effective succession planning.
So, what can you do to ensure your clients’ wealth transfers to their loved ones effectively?
A few key considerations:
- Facilitate your clients putting a robust estate plan in place establishing tailored testamentary trusts under their Wills. This will enable tax effective management of their estate, maintain the inheritance in a protective environment, and provide a powerful legacy.
- More than $750 billion is held in self-managed superannuation funds (SMSFs), commanding respect for the complexities, technicalities and possibilities for the succession of superannuation death benefits. Consider the strategy for the payment of death benefits, control of the SMSF and the transition plan for ‘lumpy’ or illiquid assets.
- Carefully consider the succession of control of discretionary trust structures, and in particular the appointor, guardian and trustee roles. What are the tax and practical consequences of terminating the trust, and can the vesting date be extended? What about trust splitting or cloning (e.g. amongst adult children) in light of recent tax rulings? And keep an eye on the implications of dealing with loan accounts.
- Do your clients run a business or a family farm? What are the operating structures? How will the wealth and assets from the business be handled after the clients are gone? Do they have a business partner? Do they have children involved in the business? What about insurance funded buy sell agreements, shareholders’ agreements, or even tailored company constitutions?
- Consider also enduring powers of attorney. Who should be appointed to make financial, personal and lifestyle decisions if a client loses decision-making capacity? How far does the authority extend? Can the attorney act in relation to an SMSF, and in particular, change a BDBN?
- Should your clients consider a family council, board or office to make decisions in relation to the family’s wealth in accordance with an agreed vision, values and governance framework?
- Lay it out on the table and encourage your clients to get their family up to speed. This can be invaluable in avoiding conflict down the track and ensuring a smooth transfer of wealth when the time comes. Facilitating family meetings and having conversations early and often can be very powerful in making such a morbid topic a positive experience for your clients.