Inheritance headache: how a $5 trillion wealth transfer could turn sour

Our richest generation, Baby Boomers, has almost $5 trillion of assets to leave for children and grandchildren, but a big problem looms.

A majority of people are flying blind when it comes to the transfer of trillions of dollars of wealth in the coming years.

New research by investment bond group Generation Life has found that two-thirds of Australians are confident they will leave a legacy but only 14 per cent have a plan in place to do it.

Among over-50s, 23 per cent have plans for their estate and legacy, mainly through wills and superannuation, and many worry about costs, taxes, structures and legal fees, the study of 2000 people found.

Generation Life CEO Grant Hackett said “hope is not a strategy” for parents and grandparents preparing to hand out an average $224 billion of inheritances annually until 2050.

“Baby Boomers are holding around $4.9 trillion in assets,” he said.

“Seventy per cent of Australians want to leave a legacy both personally and financially … but it’s almost ‘I’ll get to it’ and avoidance, and they don’t necessarily engage with it because it’s tomorrow’s problem, so to speak.”

Almost $5 trillion will be inherited in the coming decades. Picture: iStock

Mr Hackett said inheritance issues around blended families and estranged children helped produce paralysis around estate planning.

“People don’t update their wills regularly enough, and there’s almost and a lack of confidence as well,” he said.

“Sometimes the expense of this process for the average person can be quite intimidating as well … but all you are doing is kicking the can down the road and creating a huge problem for the next generation potentially.

“Even when something looks quite simple, it’s amazing the problems that can permutate and the fracturing in the family once money comes into it.”

Mr Hackett said for most people a legacy was broader than children and money, and their biggest wish was to avoid conflict and maintain family unity.

He said getting professional advice was vital. “Only one it 10 people actually get financial advice, even though there’s all that complexity when it comes to estate planning.”

Author and personal finance commentator Noel Whittaker said there were clear strategies for leaving a legacy, but good advice was needed to achieve it.

“The important thing here is to know the difference between a wish and a plan,” he said.

Pivot Wealth founder and financial adviser Ben Nash said leaving an inheritance was often hard to think about.

“A lot of research shows that people struggle to connect with their future self,” he said.

The rules, strategies, structures and tax implications were “quite complicated”, Mr Nash said.

“The tax consequences can be quite different depending on you situation and which structures you are using,” he said.

“A superannuation death benefit paid to a dependant beneficiary can avoid tax, whereas with a non-dependant it will come with tax.

Generation Life CEO Grant Hackett

Ben Nash from Pivot Wealth

“Because it is like a foreign language when you get into the detail, it becomes difficult for people – even if paying for expert advice – to know if their experts know enough.”

People should do upfront research and check that their advisers had a deep level of experience in the areas required, Mr Nash said.

“Optimising for tax outcomes can be hundreds of thousands of dollars – sometimes into seven figures – of difference,” he said.

“Have the right assets for the right legal and tax structures and review it regularly – on an annual basis. I think set and forget is gone.”

Mr Nash said thinking about inheritances should not be left until old age. As soon as people had built some wealth, bought a property or had children, it was worth considering.

“The unexpected does happen – I’ve had clients in their 30s and 40s who have passed away,” Mr Nash said.

Originally published as Inheritance headache: how a $5 trillion wealth transfer could turn sour