How to avoid the ‘oldest daughter’ effect when inheriting money

Household spending was at the heart of the federal budget, and in many households, the burden of managing the family’s finances falls to women.

Women are less confident than men about their financial future over the next 12 months, according to Australian Retail Credit Association research. They are often tasked with managing the finances not just for their immediate family, but also for their parents.

With Baby Boomers getting older, we have a large wave of inheritance on the horizon.Credit: Simon Letch

This means many women are dealing with a phenomenon known as the “daughter effect” or “oldest daughter effect” – the tendency for daughters, often the oldest daughter, to take on more financial responsibility and decision-making within an extended family.

These responsibilities often include managing financial affairs (such as family budget and investment decisions) for ageing parents and often in-laws. It can place additional burden on women, especially when they are also taking care of their own family and juggling responsibilities such as work and childcare.

On the positive side, however, the “oldest daughter effect” can have significant implications for the financial wellbeing of the family, especially if the women making these decisions seek professional financial advice and make informed decisions.

Women continue to grow their wealth, and in coming decades, will be beneficiaries of immense intergenerational wealth transfer (a recent JB Were report estimates women will be custodians of more than 65 per cent of the $4.9 trillion wealth transfer).

While every family’s financial situation is unique, here are some general tips and advice to help women manage this joint burden/opportunity more effectively.

Communicate openly and honestly

This is key when it comes to managing family finances. It’s important to have regular discussions with all involved parties to ensure everyone is on the same page and working towards the same goals. This includes discussing income, expenses, debts and savings, as well as any financial concerns or challenges that may arise.

Holding regular family meetings to address everyone’s questions and concerns will help minimise any misunderstanding of intentions, especially when making critical financial decisions such as investments, lifestyle decisions or moving parents into aged care.

To get everyone on the same page, engage with a trusted adviser who can facilitate the discussions in an objective way, and gain agreement on objectives to ensure these goals are in the best interest of the family member.

Set boundaries around responsibilities

This could include assigning specific financial tasks to other family members, such as paying bills.

Involving other siblings or family members helps lessen the burden and helps assure them that you are not “taking over” all the decision-making and cutting them out.

Create a budget and keep detailed records

Creating a budget is an essential step in managing family finances. This involves tracking income and expenses, setting spending limits and allocating funds for savings and investments. Review the budget regularly and make adjustments, as needed, to ensure it remains realistic and achievable.

It’s important to set boundaries around financial support for extended family members, to ensure it doesn’t become a burden on the immediate family’s finances. Having detailed records can minimise concerns and address questions from other interested parties in the future as to how the funds are deployed or spent.

Have the right legal documents in place

Ensure you have the appropriate authority in place to protect yourself. A Power of Attorney provides you the legal power to act on behalf of someone else. This power can be limited or general in nature. Establishing third-party access lets you view accounts and make transactions.

Seek professional advice

Managing family finances can be complex and as significant life events occur which require important decisions, professional advice can help you understand the pros and cons of each option, taking into account tax, economic and legal implications.

Managing family finances can be complex, and it’s important to seek advice from a financial adviser, accountant or lawyer to help navigate legal or financial complexities.

Professional advice will assure other interested family members that you are managing the affairs prudently.

Take care of yourself

Managing family finances can be stressful, and it’s important to take care of yourself in the process. It can be emotionally stressful as relationships may be at stake and family members may or may not have the same view. If this is not addressed it can cause disputes or even legal action.

Managing family finances for immediate and extended family members can be a challenging responsibility but by communicating openly, creating a budget, seeking professional advice and setting boundaries it is possible to manage this burden effectively and in a way that boosts a family’s financial wellbeing.

Grace Bacon is the director of RSM Financial Services Australia, AFSL 238 282, advising clients on wealth management, retirement planning and succession planning.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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