Over the coming 20 to 30 years we will see the largest intergenerational wealth transfer in history.
The majority of this will be from the “Baby Boomer” generation (people born just after the end of World War II through to 1964) and their children and other heirs.
In Australia alone, some estimates indicate the value of family homes, investment properties, superannuation and shares to transfer between generations will be a whopping $3.5 trillion. Yes, you read correctly, that was TRILLIONS, in AUSTRALIA alone.
Residential real estate and superannuation, which combined make up more than three quarters of total household assets, are the largest components of most inheritances.
Treasury estimates superannuation death benefits (the amount of super paid from a deceased person to others) will increase from around $17 billion to just under $130 billion by 2059.
Research by the UK-based Institute of Fiscal Studies (IFS) shows the value of inheritances will not only grow dramatically but will be an increasingly important source of income and wealth for younger generations. They found 72 per cent of people born in the 1960s are expecting to receive an inheritance from their parents, rising to 81 per cent for those born in the 1980s.
Why is this important for you and your family?
Well regardless of whether you are the grandparent, parent or grandchild, with such large values of assets set to transfer between such a higher percentage of families, it is clear nearly all Australians are going to be impacted by this in some way in the coming decades.
You might now be thinking, but how do I know if it impacts me? That is a great point and something that is being poorly managed and communicated by most families. Inheritance or estate planning, unlike succession planning for a business, is an area that’s often taboo. Rarely discussed by families as topics such as death and money are seen as unpleasant or inappropriate.
It is vital for families to be having these discussions and making pro-active plans.
However, like many things in family life, communication is key. It is vital for families to be having these discussions and making pro-active plans. This can lead to a range of benefits for you and your family, including:
- Open guidance about people’s plans and wishes.
- The opportunity to consider and discuss the feelings and goals of all family members.
- Having discussions in advance to ensure all parties are of sound mind and physical health to talk through and sign off on agreed plans.
- Effective planning can allow for better overall financial and lifestyle outcomes. It may uncover preferences of certain parties to receive or retain a certain asset. For example, one person might want shares for financial reasons and someone else might want a holiday home for lifestyle reasons.
- Estate Planning legislation, tax rules, superannuation laws and the various other factors which will determine the final financial value of the family’s assets before and after transfer can be very complex. By planning in advance there are numerous opportunities to create the best financial result and maximise the legacy passed through the family for future generations. I will be talking about some of these opportunities in two future articles.
- For those with a strong preference as to how the money is used in future, certain tools and strategies can be used to allow someone to ‘rule from the grave’ and ensure their assets pass to who they want, when and how they want.
- Unfortunately, we hear all too regularly about family issues related to money. Open communication and active planning can help to reduce the likelihood of family arguments or a challenge to a persons Will.
The many benefits of effective family financial planning and estate planning are clear, so what can you do?
Start the conversation and take action now to ensure your share of the great $3.5 Trillion Australian wealth transfer is handled diligently and wisely.
Josh Pennell is the author of the book ‘What Parents Want – How to create financial freedom, life balance and family happiness’ available at Amazon.com.au and Kindle. He is known as ‘The Family Finance Guy’ and focuses on providing quality financial and investment advice to busy Australian families. Find Josh on Facebook, Instagram and Linked in @thefamilyfinanceguy and at https://www.prosperadvisory.com.au/the-family-finance-guy/
General advice warning – The information contained is general in nature and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial planner before making any financial decisions. Investments and strategies mentioned should not be considered as recommendations. Past returns are no indication or guarantee of future returns. Prosper Advisory Financial Services are corporate authorised representatives of OzPlan Financial Service Pty Ltd. ABN 35 005 391 202 AFS License 221235.
