Article:

With wealth transfer on the rise, why has planning taken a back seat?

05 June 2019

Natasha Johnson, Wealth Adviser |

The largest intergenerational wealth transfer in history is rapidly approaching. An estimated $3.5 trillion of wealth will be transferred in Australia over the next 20 years from the Baby Boomer generation1. Unfortunately, the cultural taboo surrounding wealth means that family conversations about inheritance and financial legacy are a rare occurrence.

In a study conducted over 20 years by The Williams Group2, 70% of families failed to successfully transfer their assets from one generation to the next. The top three reasons being: lack of family communication, beneficiaries being inadequately prepared to manage the inherited wealth, and the absence of a planned purpose for the family’s wealth. On the other hand, the common factor highlighted in almost all of the successful wealth transfers was communication.  As outlined in our previous article, the Australian Savings Myth, a large number of Australians are concerned that they do not have sufficient financial assets to meet their income needs throughout their lifetimes. Additionally, many do not know how the transfer of wealth to their beneficiaries will impact their financial position over the long-term, so it is not surprising that planning how and when their wealth is transferred is often put on the back burner.

Compared to previous generations, Baby Boomers can expect an increased life expectancy given the rapid advances in the health care industry. Therefore, it is important to consider the likely age of the beneficiaries when they receive their inheritance. For many, receiving financial assistance in their 40s/50s is much more powerful than receiving funds in their 60s/70s when they are likely to have already accumulated an amount of wealth and retired from work.

Having a plan on how and when your assets are transferred and discussing the plan with the beneficiaries will ensure that all parties involved understand your intentions and the process. Given the unique dynamics in families, there is not a one-size-fits-all approach, which makes having a well-integrated plan vital to ensuring a successful transfer of wealth between generations.

If you need help starting the conversation, please contact a BDO Private Wealth expert.

References
1 McCrindle, 2016, Wealth Transfer Report, A Report for No More Practice, September
2 Williams and Preisser, Philanthropy Heirs & Values, Robert D. Reed Publishers, 2005

Disclaimer:

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings, etc., as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances.The financial product advice or information in this document is of general nature only and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser, whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.