Early inheritance dilemma ahead of massive Boomer wealth transfer

As Baby Boomers move through retirement, families are dealing with tricky questions around transferring wealth. Take our poll.

Inheritances are going be a huge issue over the next three decades as Australia’s richest generation, the Baby Boomers, gradually disappears.

The Boomers, now aged between 60 and 78, are expected to transfer the bulk of their wealth to their children – an estimated $5 trillion of assets to be handed out at a rate above $200bn a year.

Illness and age has already pushed some Boomers beyond the once-popular acronym of SKIs – spending the kids’ inheritance – and many are thinking about the end of their lives and where their assets go.

An increasing number are considering early inheritances, often in an attempt to help their children get into the real estate market, and home loan specialists have seen a huge recent jump in the use of the Bank of Mum and Dad.

But what if the kids already have their home sorted? Should parents consider dishing out money regardless? Some Boomers are only now receiving inheritances themselves from their own elderly parents.

More parents are helping out their children with gifts, loans and early inheritances. Picture: iStock

People are living a lot longer these days, and some of those with wealth choose to share it sooner rather than leave their inheritance to 60 or 70-year-old children.

But only if it’s affordable. The number one rule for people considering giving an early inheritance is to not leave themselves short, especially as the cost of living continues to climb.

Every family is different, and for many an early inheritance is not possible because the parents themselves are living on an age pension and little else.

However, this topic is vital to think about – and potentially discuss among family members – well before retirement age because there can be costly tax, pension and superannuation problems if ignored.

Many retirees like to receive some sort of age pension because of the many government concessions it qualifies them for, and couples today can have a million dollars of assets – plus their family home – and still get some pension.

But Centrelink’s gifting rules are strict – people on a pension can only give $10,000 a year and $30,000 over a five-year period. Anything more is treated as a “deprived asset” and still counts towards Centrelink asset tests for five years after disposal. This means early inheritances must be sorted well before retirement age.

Superannuation strategies can help avoid Australia’s de facto death tax on peoples’ super if it’s inherited by non-dependants, while capital gains tax is always an issue when selling investments.

Housing help is huge from parents, either through financial gifts, loans, going guarantor or jointly investing with children. There are legal issues with these that should be considered.

Some inheritances may be unwanted, as strange as that may seem for the majority of people.

Equity Trustees has had clients who didn’t want their parents’ money for various reasons.

One directed most of mum and dad’s money to charities because they felt they already had enough for themselves and their kids, while another was on a disability pension and suffered from anxiety and worried what an inheritance would mean for their finances.

Advice was helpful in both cases. Parents and children can avoid these potentially awkward situations by communicating well in advance.

Don’t make money a taboo topic, especially when it comes to sharing your wealth with family – early inheritance or not.

Originally published as Early inheritance dilemma ahead of massive Boomer wealth transfer