Intergenerational wealth transfer

Intergenerational wealth transfer – or in simpler terms, passing on assets to your family, can be, and often is, a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous grief, fights and resentments that are never forgotten nor forgiven.

What’s involved?

The first step you should take, is to go through the process of making a will, which is a legal document that enables you to say who gets what after you die. Without one, your estate could go to people you wouldn’t want it to. Indeed, in the absence of a will, and any relatives, your estate may end up going into the public purse.

Given the importance of a will in seeing your family receive what you want when your estate’s distributed, incredibly, it’s estimated that nearly half of all Australians die without one. This is even more surprising when you realise a will can be a fairly simple document to draw up, and generally doesn’t cost much. Having a solicitor draw one up for you will ensure it’s properly completed and worded, and is less likely to be successfully contested by anyone who believes they haven’t received their fair share of the pie.

Naturally, there’s not much point in having a will if no one knows where it is. Make sure one copy is in a safe place for yourself, and keep another copy with your executor and/or solicitor.

Wealth transfer during your life

While having a well-considered and properly drawn up will is a necessity for anyone serious about achieving good outcomes, you don’t have to wait until you die before distributing your wealth. – You can pass on assets while you’re alive, though note, there may be some pitfalls involved, depending on your circumstances.

Firstly, you need to ensure that by giving your capital or assets away you’re not going to leave yourself short-changed, particularly if you live longer and have greater aged care costs to deal with than anticipated, which is not unlikely. You really have to consider closely whether you can afford to pass on the assets you would like to while you’re alive.

Secondly, if you give away assets worth more than $10,000 in one year or more than $30,000 in five years, anything above those limits, under so-called ‘deprivation’ rules, are still counted as belonging to you, for up to five years – and this can negatively affect your Centrelink aged pension and aged care entitlements. We recommend you speak with your financial adviser if you might be at risk.

There may also be costs involved in the transfer, such as capital gains tax and stamp duty. Make sure you speak to your accountant before making any decisions.

Other considerations

With intergenerational wealth transfer there are other issues to consider in addition to the ones above. These include:

    • what tax implications there may be for your beneficiaries (some assets may be passed down with a potential capital gains tax liability or a superannuation death benefit tax attached – which affects their ultimate net value)
    • what your beneficiaries really want (one child may want your shares, the other may want your old Jaguar)
    • which of your beneficiaries may be ‘at risk’ (for example, your daughter’s marriage could be looking shaky, which could see part of her inheritance from you end up in her ex partner’s hands).

These and other matters can be addressed through some key steps including open family communication, the use of testamentary trusts if required, a binding nomination on your super and a good will. Much of intergenerational wealth transfer will involve input from your solicitor, however for an area as important as this, a lot of very useful advice and help can be provided by your financial adviser.

Centra Wealth Group
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Zac Zacharia (Managing Director) has been assisting clients to create wealth and secure their futures for over 14 years.

He is also an accomplished presenter and educator

Co-authoring the popular investment book, Property vs Shares.