Intergenerational wealth transfer
Contents
The “great
wealth transfer” has began
How would you distribute $3.5 trillion? Over the next 25 years, that’s the estimated amount Baby Boomers will be passing on to younger generations in Australia.[1] Worldwide this “great wealth transfer” is expected to reach over A$100 trillion.
That’s a lot of money and assets changing hands, and a lot to think about if you’re a Boomer born between 1946 and 1964 (meaning you’re aged 61 to 79 in 2025). Like when’s the best time to distribute your wealth – during your lifetime or within your inheritance? What are the tax implications for both? For lifetime giving, what options are open to you? When should you put in place estate planning strategies? How do you manage family dynamics and sensitivities?
They’re important questions to discuss and explore, given you’ll likely be involved (as the giver or recipient) in the greatest transfer of intergenerational wealth in our history.
[1] Source: Productivity Commission Wealth transfers and their economic effects Research paper, November 2021
Understanding intergenerational wealth
According to the 2021 Productivity Report, inheritances consistently account for the vast majority of wealth transfers. In 2018 this amounted to approximately $107 billion (90 per cent), compared with less than $14 billion for gifts. The value of the average inheritance was $125,000 compared to $8,000 for gifts.
In terms of who is distributing this wealth, the latest CoreData Research revealed the Baby Boomer generation holds around $4.9 trillion in total assets. This wealth is held by over 4 million Baby Boomers, including a small group of wealthy Baby Boomers with 1.3 trillion in assets.[2] These assets largely consist of residential property, unspent superannuation funds and other investment assets bequeathed to family beneficiaries.
When we look at the makeup of recipients, those who receive an inheritance are typically middle aged or older, with a median age of just over 50. Recipients who received gifts were much younger, most commonly in their early twenties.
As we dig even deeper, a JBWere report revealed that women are expected to receive 65% of this intergenerational wealth transfer.[3] This is due to a range of factors; women living longer than men, women are more likely to gain assets through divorces than in previous generations, the growing rise of high-net-worth females who are more financially savvy than ever before, and the “older daughter effect” that often sees family finances becoming the responsibility of the eldest daughter rather than the eldest son.
With $3.5 trillion set to change hands over the coming years, this leads us to our first big question: When is the right time to distribute all this wealth? Should you wait and leave it all in your inheritance, or start distributing before then so you can enjoy seeing your wealth have an impact while you’re alive – known as lifetime gifting.
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[2] Source: CoreData modelling (updated November 2023)
[3] Source: JBWere, The growth of Women and Wealth, March 2024
Inheritance vs lifetime gifting
As you can see from the research, the majority of intergenerational wealth transfer occurs through an inheritance. It also shows that as Australians are now living much longer through advances in medicine and lifestyle changes, by the time the inheritance is passed on recipients are typically older themselves.
This leads to a strong argument around distributing wealth earlier when recipients are more likely to be facing key financial challenges like buying a home or raising a young family. And in need of extra support. Philanthropic giving may also be important to you in using your wealth to help others.
There’s a lot to unpack there. If you’re exploring the idea of lifetime gifting, how will this impact your retirement plans to ensure you still have enough wealth to live comfortably, but also leave a lasting legacy to pass on?
The best place to start is with a trusted financial advisor who can help you map out your goals related to transferring wealth, and then model how this could look through your retirement years up until your passing. We’ll talk more about this throughout the article.
So what are some of the lifetime gifting strategies for families you can explore?
Lifetime gifting strategies
Here are some of the most common options for gifting wealth across generations:
1. Gifting cash
A cash gift to a family member is the easiest option open to you, and the most flexible if you want to provide support for a specific need. It could be funding an overseas holiday, paying for the grandchild’s first car, or covering essential medical expenses. While there is no gift tax in Australia, if the gift is large it may have implications for Centrelink (if the recipient is receiving government benefits). Also, cash gifts are generally tax-free for the recipient, but it’s important for you to keep track of these for potential capital gains tax (CGT) implications in future asset sales. Creating a structure for your cash gifts will help you distribute them fairly if multiple family members are involved, and also ensure you can report on them if necessary for taxation proposes.
2. Gifting assets
Property
We all know property is one of the largest financial burdens to face, so providing property assistance to children or grandchildren can be life-changing. This can take various forms, from covering housing deposits or mortgage repayments, through to gifting the entire property amount via direct transfer or by placing it into a family trust. Gifting property can trigger CGT unless it is your primary residence (which may be exempt in certain cases) so you need to take this into consideration.
Shares and Investments
Transferring shares or other investments is another way you can gift assets to family members. While you need to be aware that this transfer may trigger CGT on the gains, this can easily be accounted for in the planning of gifting the shares. Similarly, any CGT the recipient may have to pay if the asset is sold at a later date can also be factored in with the gift.
Seeking advice from a trusted accountant and financial advisor when gifting any type of asset is always important to protect the interests of all parties involved.
3. Education support
Offering education support is one of the most rewarding gifting options. You can do this through gifting for a specific cost, such as schooling fees or tuition. Or you may want to set up an investment or education bond to save for your grandchildren’s education. These offer some tax benefits and are a great way of saving for these costs, as you can make regular contributions and start with as little as $1,000. The key consideration is they do need to be set up 10 years before the money will be used to get full advantages.
Read our three golden rules for affording private school fees
4. Family trusts
A family trust is a popular option for passing on wealth to multiple generations. It allows the trustee to distribute income or capital to beneficiaries (such as supporting grandchildren financially) in a tax-efficient manner. Trusts also help with asset protection, tax management, and even planning for beneficiaries who may not be of age or maturity to manage their inheritance effectively. As there are legal and tax implications, professional advice is critical in establishing a family trust.
5. Philanthropic gifting (family foundations or charitable trusts)
Another way of transferring wealth across generations is by establishing a family foundation or a charitable trust. The major benefit of establishing this while you are living is to be able to see your wealth in action having a positive impact. It also al-lows you to involve your family members in its distribution, and know that you have created a legacy that will hopefully last long after you are gone. It can form part of your estate planning to ensure that your family’s wealth is directed toward causes you care about, while also passing on values to future generations.
6. Managed investment funds
If you’re interested in a more passive investment option, setting up managed investment funds (like index funds or actively managed funds) can be a good option. These can be gifted into family names or trusts. Managed funds are relatively easy to transfer and can offer capital growth and income, though any income may be taxed at the recipient’s rate.
7. Self-Managed Super Funds (SMSF)
If you have a SMSF, you can manage the investments on behalf of your family and control the distribution of funds post-retirement. However, SMSF rules are complex, especially when it comes to transferring assets, so once again professional advice is vital.
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Estate planning integration
The main concern with lifetime gifting is ensuring you’re left with enough wealth to distribute to your loved ones when you pass away. This can be alleviated by getting the ball rolling early with your estate planning strategies. This offers a host of benefits:
1. Financial modelling
By engaging early with a professional such as a financial advisor, they will be able model scenarios based on what you would like to give away during your lifetime, and how much you would like to leave behind. This provides peace of mind and clarity for the future.
2. Inheritance planning tips
Discussing your inheritance options at an early stage allows you to take advantage of all the opportunities open to you such as:
Will
This is an essential document clearly defining how you want your assets distributed after your death, specifying who will inherit what, and ensure that your intentions are respected. It can include cash, property and other valuable possessions (from mate-rial items to the care of pets).
Testamentary trust
This is a trust created upon the death of a person as outlined in their will. It allows wealth to be transferred to beneficiaries under certain conditions, which can include asset protection, tax advantages, and control over distributions. The trust allows for greater flexibility in distributing assets, including potentially lower tax rates for minor beneficiaries (who might otherwise be taxed at a high rate on investment income).
Life insurance
Another essential document, life insurance policies allow you to pass on wealth to beneficiaries after death. You can nominate your children or grandchildren as beneficiaries of your policy, and the payout can be used to fund their future. Death benefits from life insurance policies are generally tax-free in Australia, making it an attractive way to pass on wealth.
Superannuation
While you can’t directly gift superannuation funds to beneficiaries while you are alive, superannuation can be passed on after death via a binding death benefit nomination or through the Will.
3. Avoids unnecessary legal and financial stress
The probate process – the legal process of administering your estate after death –can be time-consuming and costly. If you have an estate plan in place, the process is typically faster and more straightforward for your loved ones. Early planning can also prevent disputes among family members, as it reduces the chances of confusion or disagreements over your estate.
4. Power of attorney
Putting in place your power of attorney when you first establish your Will protects your interests if you are unable to make decisions due to becoming physically or mentally incapacitated; giving you added peace of mind your wishes will be carried out.
Wealth transfer
tax strategies
You’ve worked hard to create wealth for your adult children and their grandchildren. The last thing you want is to see is that wealth diminish due to poor tax planning. Again, this is where professional advice from an accountant and financial advisor is worth its weight in gold in helping you put in place beneficial wealth transfer strategies.
Here’s some key considerations for maximising tax-efficient wealth distribution.
1. Capital gains tax
When gifting property or investments that have appreciated in value, CGT may apply. It’s important to consider whether the asset’s market value at the time of transfer triggers a tax liability. For example, an owner-occupied family home can be inherited in Australia without CGT consequences, providing it has not been used to produce income at any time and is sold within two years.
2. Income tax
If you gift assets that generate income (shares, rental properties) the income might be taxable for the recipient. However, tax rates for beneficiaries can vary based on their circumstances.
3. Centrelink implications
Large gifts can affect the eligibility for government benefits, especially for recipients over 65. Centrelink has gifting limits and may assess the value of gifts as part of their means test.
4. Gift duty
While Australia doesn’t have gift duty, there are reporting requirements if the transfer exceeds a certain amount, particularly if it is related to a business or property.
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Family dynamics and sensitives
In many ways this is the most important consideration of all. Having open conversations with family members around your intentions of how you plan to distribute your wealth – while alive and after your death.
These conversations can be complex and sometimes difficult, especially when the family structure may include previous spouses and step-children. But that only makes them even more essential.
Your retirement years should be one of the most rewarding stages of your life, being able to provide for your family financially and knowing this support will continue long after you’re gone. Make this happen by exploring and embracing the possibilities of distributing your accumulated wealth as early as you can, and bringing your family along the journey with you.
This is where having a trusted financial advisor can be a strong ally in taking families through this process. It can remove some of the emotions from the discussion, creating a clear roadmap for transferring and preserving family wealth that can be discussed in an empowering and non-confrontational way.
All aimed at achieving a result that feels good for you, and good for your family.
Looking for a financial advisor? Learn the 8 questions you need to ask.
Plan with purpose
At Tribeca, we offer a holistic approach to intergenerational wealth transfer. We begin with your needs and goals and then look at all aspects of your estate, from financial legacy planning and gifting strategies for families through to implementing wealth transfer for pre-retirees and those in retirement.
If you’d like to talk, please book in an obligation free ‘get to know you’ call with one of our advisors.