Boomers' inheritance dries up

THE property squeeze is leading more baby-boomers to be overlooked in wills, with their parents passing on wealth directly to the younger generation.

Boomers' inheritance dries up

THE wealthy baby boomer generation might not have it all its own way after all.

A new trend is gaining momentum known as "sidestepping", referring to the practice of parents of baby boomers sidestepping their adult children in their wills.

Instead the much anticipated inheritances - often considered the icing on their already large cakes - are being passed directly to the struggling younger generation.

"While the exact reasons are hard to pinpoint, there is anecdotal evidence that the housing affordability crisis among young people is partly behind the new trend," said Robert Monahan, senior estate planner at Australian Executor Trustee.

"It has been said that Generation Y, people born between 1978 and 1992, are likely to be the first generation in history that are financially worse off than their parents," Mr Monahan said.

"Grandparents seem to be picking up on this dramatic shift in fortunes and using their wills to do something about it.

"They look at their own children who have acquired good homes and impressive superannuation balances and they then look at their grandchildren who face the prospect of financial hardship because of rapidly rising housing cost and even future education expenses.

"Giving an inheritance directly to the grandchildren and skipping or sidestepping their own children is seen as helping them avoid major debts as they enter adulthood," Mr Monahan said.

With house prices continuing to soar above traditional price growth levels, and with baby boomer property investors helping to increase the competition against the 20-something first home buyers, more and more grandparents see the logic in this strategy.

Where once the idea of making provision for grandchildren or great-grandchildren was only common among the exceptionally wealthy, today many ordinary families are "sidestepping" and planning for the younger generation.

Financial planner RGA Financial Group director Robert Gibbs said one of the biggest concerns for many elderly people was the high rate of divorce and divided families.

This often posed a problem for them when planning how to make plans for their inheritances and to avoid the assets being dispersed through broken marriages, Mr Gibbs said.

With divorce rates of up to 50 per cent, however, the potential problem was not just limited to baby boomers but would also be a potential problem for the next generation.

"One way that people can more or less control their capital from the grave is through a testamentary trust," Mr Gibbs said.

These trusts, a legal structure that must be set up by a solicitor, can be drawn up to dictate where the proceeds of investments can go to and at the same time keep the core pool of investments from being sold off so income can continue for future generations.

Mr Monahan said a recent example of a testamentary trust was where the grandparents arrange to progressively pay out the inheritance to the grandchildren as they reached certain milestone ages, such as at 21, then again at 30, 35 or 40.