Early inheritances rising as baby boomers’ wealth balloons

Baby boomers are leading the charge for their children to inherit trillions of dollars, and they’re doing it in some interesting ways.

Many parents plan to hand over their wealth sooner. Picture: iStock

Rising numbers of baby boomers are increasing talk and actions towards transferring Australia’s vast household wealth to their children and grandchildren.

Finance specialists say assistance for younger generations has accelerated in the past year as older Australians try to give family members a “leg-up” and potentially prevent a hefty tax bill.

Social research group McCrindle says people aged over 59 hold $6.2 trillion of Australia’s $10 trillion of household wealth, much of it in property, while William Buck Wealth Advisory partner Adrian Frinsdorf said more people were looking to pass on wealth sooner.

“Hardly a day goes by when I don’t have a conversation with a client about wealth transfer,” Mr Frinsdorf said.

“It’s moved beyond simple inheritances, with parents and grandparents now wanting to provide greater assistance in their living years.

Surging property prices have put many seniors in a stronger-than-ever position. Picture: iStock

“The strong recent performance of share and property markets has fuelled significant wealth gains for many Australians. This has them in a unique position to provide more financial assistance.”

McCrindle social researcher and trends analyst Sophie Renton said Australia was seeing “the rise of the grandparent economy” as more seniors provided financial and other help to grandchildren.

“They are helping with housing support, whether that’s helping with a deposit or allowing family members to live rent-free for a period while they get their deposit together, even investing in education,” she said.

“It’s providing a leg-up for someone to be building their own wealth, and they’re using their assets to benefit the younger generations within their family.”

McCrindle research has found 12 per cent of Generation Zs (born between 1995 and 2009) has reported receiving financial help from grandparents to buy a home, while just 2 per cent of current baby boomers received help from grandparents.

However, Ms Renton said people should be careful not to generalise, because not all boomer households had wealth “and retirement can be a real challenge for them”.

JBS Financial Strategists CEO Jenny Brown said factors prompting mores talk of wealth transfer included rising living costs, higher interest rates and their impact on their children’s debts.

“We started to see it 18 months to two years ago, but it’s become a much more topical conversation over the last six months,” she said.

Ms Brown said she was seeing many clients reach their 70s and wonder whether they could afford to help out sooner.

She warned that financial gifts could be a problem if an adult child or grandchild separated from their spouse. “Be mindful that the gift forms part of the marriage pot.”

Ms Brown said loans – properly drafted using a lawyer – was a strategy increasingly being used. “Then you can recall it back,” she said.

Most seniors can withdraw their superannuation tax-free in retirement, but if they die first their beneficiaries – apart from a spouse or financial dependent – can pay up to 17 per cent tax on their super inheritance.

Advisers help some seniors use super re-contribution strategies to wipe out taxable portions of super, while other retirees withdraw super to pay for entry into aged care via a Refundable Accommodation Deposit (RAD).

“That becomes part of your estate, but it transfers tax-free – why have it going to a non-dependent (from super) and have it taxed?” Ms Brown said.

“The RAD is a government guarantee and a $1m RAD is risk-free that comes back to your estate.”

William Buck’s Mr Frinsdorf said strategies for transferring wealth included helping with home deposits, pumping money into children’s superannuation, paying financial advice fees for children, paying for education costs, setting up family charitable funds and paying trust distributions.

“The tax implications of wealth transfer strategies need to be well understood by all parties before progressing, otherwise someone’s generosity may unintentionally do more harm than good,” he said.

“Ultimately it comes down to open communication between family members so there are no costly financial surprises.”

Originally published as Early inheritances rising as baby boomers’ wealth balloons