Early inheritance surge: What's driving parents to give now
Parents are abandoning traditional inheritance practices in an unprecedented wealth transfer that's transforming how families handle money across generations.
An inheritance used to be something left to loved ones after death. But that’s all changing. Early inheritance is becoming far more common as wealthier seniors move to help out younger generations by gifting money much sooner than originally expected.
It’s a trend Treasurer Jim Chalmers proposed new super tax will only accelerate, according to Perks Private Wealth director Simon Wotherspoon.
“The proposed Division 296 tax on super balances above $3m has many families also thinking about moving excess funds out sooner and putting them into more flexible structures,” Mr Wotherspoon said.
He said more families were bringing forward wealth transfers to avoid any confusion later on and were keen for their children to buy homes of their own.
“Record property prices mean parents would rather help their children get onto the property ladder now, than leave a lump sum that arrives decades later,” Mr Wotherspoon said.
“For family businesses, parents are starting the handover earlier, so the next generation can learn while their elders are still there to guide them.”
Goldsborough Financial Services director Brenton Miegel said more people in their mid-70s were recognising their longevity and that they were set up financially and therefore could pass on money while they were still alive.
“They see their kids with big mortgages and they think I might as well help the kids out now rather than wait another 20 years,” he said.
Mr Wotherspoon said before considering an early inheritance, parents should first understand how much money was enough for them to cover their health and lifestyle.
“Write it down and keep it tidy,” he said.
“Good paperwork prevents bad blood. Update wills, trust deeds, shareholder agreements, and document loans or gifts properly.
“For parents with large super balances, moving excess funds out and re-contributing for adult children can be a smart move. It gives the kids a tax deduction on concessional contributions and keeps the capital invested for the long term.”
Not only are the right financial structures important but it is imperative it is communicated with family members, Mr Wotherspoon said.
“Money can also cause family friction, so clearly documented early transfers reduce uncertainty and resentment later,” he said.
Tiyce & Lawyers Family Law Specialists principal Michael Tiyce said where there was potential family conflict, a practical step could be to hand out assets while still alive. He said this “significantly reduces the opportunity for disputes after death”.
Money coach Karen Eley said more parents and grandparents were transferring wealth via early inheritances and their payments were generally aimed at easing financial strain.
“They are typically used to contribute to purchasing a home, paying down the mortgage faster, assisting with private school education or divorcing children that need some additional financial support,” Ms Eley said.
She said many people wanted to see the joy and benefit received by their children.
Ms Eley said if there were strained family dynamics, or parents foresaw financial conflicts, these could be addressed while they were still alive.
“However, I also have worked with clients that predict there will be conflicts and disagreements and essentially don’t want it to be their problem while they’re alive, so leave it to their will once they’ve gone,” Ms Eley said.
“I don’t think this is a good strategy.”
She said parents should consider the impacts on tax, superannuation and family harmony.
“Are the proposed payments fair and equitable to all siblings or family members?” she said.
A majority of Australian retirees receive a full or part age pension, and giving early inheritances can potentially prevent their payments being cut by the income and assets tests.
She said, in some circumstances, people might consider giving out early inheritances before they turned 62.
“If you are wanting to maximise your age pension entitlements, gifting assets five years before reaching age 67 – the age pension age – can assist in reducing your asset test means testing,” Ms Eley said.
“Centrelink only looks at including assets in their means testing that were transferred within the last five-year period.”
Mr Miegel said understanding the gifting rules for pensioners was challenging.
“You can gift $10,000 per financial year and $30,000 over five years, and if you gift more than that it becomes a deprived asset that counts towards the assets test and is deemed for income test purposes,” he said.
Mr Miegel said seniors should not aggressively hand over their assets simply to secure a little more pension: why give away $400,000 to earn $20,000 a year if it only delivers you $5000 in age pension?
“Do the maths and the logic doesn’t work,” he said.
“Make sure you are doing it for all the right reasons, and don’t do it because you are feeling obligated or pressured. Do it because you want to do it and you are not going to be disadvantaged by the gifting.”
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