Who's inheriting your wealth?

Financial Advice

26-03-2024

Who's inheriting your wealth?

It is anticipated that intergenerational wealth transfer, or the passing of assets and financial resources from one generation to another, will be one of the most significant financial events of the next 20 years. With the wealthiest generation in history (the "Baby Boomers") now in their mid-late 70's, their offspring ("Generation X" now aged 40-60) are expected to inherit close to $3.5 trillion over the next two decades.  

The wealth landscape 

The wealth of the average older Australian has grown substantially since the turn of the century. It has been buoyed by strong real growth in house prices and almost three decades of growth in superannuation balances, alongside low rates of asset drawdown to fund retirement. As such, many older retired Australians, at a time of life where one would expect them to be drawing down their wealth to fund consumption have continued to increase their wealth.  

The transfer of this increased wealth while they are alive is known as inter -vivos gifts (gifts), and at death, an inheritance.  90% of transfers are inheritances given to (adult) children and spouses of the deceased. 

Key facts: 

  • Australia has an ageing population and in 2027, the first of the Baby Boomers will reach their statistical age of death (81 for men and 85 for women). 
  • The “Baby Boomer” generation makes up 21.5% of the population and accounts for approximately 53% of the wealth in Australia (www.abs.gov.au). 
  • The real value of intergenerational wealth transfer (inheritances) was $52 billion in 2018 and is expected to increase fourfold between 2020 and 2050. 
  • Generation X (40-60) is expected to inherit close to $3.5 trillion from their parents in the next 20 years. 
  • Housing wealth (property ownership) is a significant component of that wealth. Older age groups own more property, draw down on that housing wealth slowly, and also inherit large housing wealth from their partners in old age.  
  • The long-term trend of falling fertility rates means that older Australians have fewer children and grandchildren to leave their wealth to.  

With such a large number of Australian’s expected to inherit significant wealth over the next 20 years it is interesting to note that over 80% of beneficiary children who inherit wealth from their parents will look for a new financial advisor to manage their inherited wealth, rather than turning to their parent’s financial advisor.  

This presents a significant challenge and opportunity to the financial advice industry if advisors are to retain the management of the wealth transferred from their valued clients to their offspring. It highlights the importance of advisors building intergenerational relationships with their clients families to ensure the smooth transition of wealth from one generation to the next occurs and the intended legacy of the benefactor is honoured and upheld.

How is wealth transferred? 

In essence, there are four main ways wealth is transferred from one generation to the next. One or many may be used as part of a detailed estate plan with the most suitable and tax effective option dependent upon an individual’s unique circumstances and financial situation.  Careful consideration and planning are required to ensure that the most suitable vehicles are used to ensure the transfer of wealth upholds the benefactor’s intentions and is executed in the most tax-effective manner. 

  • Will and estate planning 
    Drafting a comprehensive legal Will is a fundamental step in ensuring that assets are distributed according to your wishes. 

  • Residential property 
    The family home is a tax-exempt asset in Australia. As a result, the significant capital growth in real estate assets in Australia over the past 30 years in particular means a large portion of untaxed wealth transfer will come via the realisation of the family home.  

  • Family Trusts (Discretionary Trusts) 
    Establishing a family trust can be an effective strategy for managing and distributing wealth. A family trust allows assets to be held for the benefit of family members, and income generated can be distributed among beneficiaries, including children.  

  • Superannuation 
    Superannuation, or retirement savings, is a significant component of an individual's wealth.  

With rising costs of living, high property prices and a highly competitive job market shaping Australia’s future, the impact of intergenerational wealth transfer in creating opportunities for future generations over the next 20 years will be significant. The decisions made by wealthy Baby Boomers today will shape the future of thousands of Australians for generations to come. 

At Partners Wealth Group we encourage intergenerational collaboration and transparency around wealth transfer wherever possible. By involving the next generation in the discussions and decisions around estate planning and other aspects of financial planning, many clients feel a greater sense of control and peace-of-mind over their legacy and the financial future of their descendants. 

While there are many ways to distribute wealth, the only way to ensure it goes to the intended recipients is by having an up-to-date robust legal Will in place at the time of your death. If you need help ensuring the transfer of wealth within your family is managed tax-effectively and according to your wishes, or if you haven’t reviewed your Will in the past few years, contact us today for an obligation free discussion. 

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.