Transferring Wealth to the Next Generation


We all know that life’s expensive in Australia these days–especially if you have an interest for buying residential real estate in a capital city. On top of that, if you are “lucky” enough to get into the real estate market, that usually means that you’ve signed yourself up for an enormous mortgage for the rest of your life. If you plan to rent, then you must be aware of the continuously rising rent! Shortages of rental properties and continuous landlord rate rises have established surging rental costs in Australia. Though Sydney certainly claims the most expensive rents in the country, rental prices in Melbourne, Canberra and Adelaide, with limited supply and growing demand, are not far behind. Then there’s the expenses of raising a family, not the least of which is private school fees, which annually compete with the mortgage for the title of the major financial commitment of the year.

Currently, Baby Boomers sit at the head of the real estate table. They have benefited from the property boom and live in large homes in great locations so to be very general, they are wealthy and cashed up. Add to that a nest egg of superannuation and Baby Boomers have unprecedented options when faced with retirement. Now, baby boomers have long been derided for dominating the real estate markets and preventing the next generation from getting a chance to claim their own little bit of share. A grey-haired army is invading auctions in Australia’s best postcodes now-a-days. Anyhow, whether it’s out of parental love, or just sheer guilt, baby boomer (and other generation) parents are often keen to give their children a financial helping hand in life.

Now the question is, should they give the money to their child or children by way of a gift or a loan?

There are many ways to transfer wealth and they are definitely not all equal.

A large wealth transference event has begun in Australia. Experts say it’ll be bigger than any our nation has ever known. Baby boomers, who began hitting retirement age two years ago and who own over $1 trillion in private wealth, will be passing on that wealth over the next three decades. This “monetary love” is often in the form of providing a hefty deposit for a home, helping with regular mortgage payments in hard times once the home has been acquired, or helping out with private school fees (especially if one parent takes time off work to focus on child-raising, reducing the obligatory dual income family to a single income prospect). With record low interest rates and astronomical house prices, buyers in desirable parts of Sydney and Melbourne are increasingly relying on the bank of mum and dad to stump up the cash for deposits that run into six figures.


If not managed properly on a personal level then this transfer of wealth from one generation to the next could also represent one of the biggest influxes of funds into the Australian Tax Office’s coffers. But choose the right transference strategy for your purpose – whether that be an education for your grandchildren, a reduction in your own taxable estate, a provider of income for yourself, or anything else – and the funds will be available to do the job they were intended for.

A current Will that reflects your wishes is most important, and as most many people’s assets, including possessions, property, money in bank accounts, shares and managed funds will, upon their death, become part of their estate and be governed by their Will. You may also have a range of other assets, including superannuation and life insurance, that may not form part of your estate in the event of death. Deciding to whom you want these assets paid, and reviewing your beneficiary nominations with your super fund or life insurer, is critical.

If you own assets in joint names, for example, an investment property, ownership of the asset may automatically pass to the surviving owner in the event of your death. It’s also a good idea to communicate with your beneficiaries and the executor of your estate to let them know how your finances are organized.

One way of transferring your wealth involves gifting to family members or to charities while you’re alive. Whether it’s funds for education or larger amounts for the purchase of a property, or even a property itself, the gift giver should take care to ensure the receiver will not suffer a higher tax rate because of the gift and the gift giver and receiver will not lose a large chunk of the value of the gift in tax.

Gifting of assets by retirees is sometimes seen as a good strategy to qualify for or maximize the Age Pension. The Age Pension can also bring with it additional benefits such as reduced costs of utilities and pharmaceuticals. But certain rules apply when gifting for Age Pension purposes, including:

  • Allowable gifting limits of $10,000 per person or per couple combined per financial year (also capped at $30,000 over a 5-year-period)
  • Gifts above these allowable levels are still counted towards your assets and income for 5 years from the date of your gift.

Another wealth transfer option could involve a discretionary trust such as a family trust. Such a vehicle can pay less tax on earnings and allows funds to be pooled to boost the final balance. Trustees control the assets on behalf of beneficiaries, who must be nominated. Up to $4.16 per child per annum of annual investment income can be paid tax-free to children/grandchildren under 18, or up to $20,542 annually tax free to beneficiaries over 18, assuming they’re not making an income elsewhere. These types of vehicles do require close management and will cost money in terms of advice, accounting and legal fees, but for many people they can be a very worthwhile investment.

Young happy couple

Another effective estate planning tool to provide for your beneficiaries is to have a testamentary trust. Testamentary trusts are created by your Will and provide control over the distribution of your assets to beneficiaries. As well as providing a flexible and tailored way of distributing your wealth to your chosen beneficiaries, these trusts can provide several tax benefits.

Unlike other investments, life insurance can give individuals a solid asset they can count on for wealth transfer, regardless of how the market is performing. Since the death benefit paid to beneficiaries is based on a combination of estimates and mortality predictions derived from actuarial tables, a life insurance policy’s proceeds are mostly insulated from market fluctuations. In addition to providing greater certainty about the value of assets being passed on to heirs, life insurance policies can also help high-net-worth individuals avoid passing on steep taxes to children. Life insurance death benefits are not subject to income tax, and policies can be structured outside of the estate to ensure that life insurance proceeds are not subject to estate taxes.

A critical part of transferring wealth and protecting next generation is through your family business by doing a succession planning. Provide a contingency plan allowing to your children to survive and prosper with the business if the business owner or owners depart through retirement, illness, injury, or death. A good succession plan can secure a cash flow for your next generation without transferring any tax burden on them.

Click here to learn more about Succession Planning.

With various options and benefits to take advantage of, it is important to discuss your situation with your adviser to ensure an individually customized wealth transference plan is put together to match your specific needs and purposes.


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