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 wealth transfers to your loved ones effectively?
Some key considerations:
- Put a robust estate plan in place establishing tailored testamentary trusts under your Wills. This will enable tax effective management of your 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 your 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 your discretionary family 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 you run a business or a family farm? What are the operating structures? How will the wealth and assets from your business be handled after you are gone? Do you have a business partner? Do you 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 you lose decision-making capacity? How far does the authority extend? Can the attorney act in relation to your SMSF, and in particular, change a BDBN?
- Should you establish a family council, board or office to make decisions in relation to your family’s wealth in accordance with an agreed vision, values and governance framework?
- Lay it out on the table and get your 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.