Jan 21, 2022

Our insights

‘Baby Boomers’ have been busy saving, investing and accumulating wealth for many years. And as this generation enters the later years of life, the enormity of the wealth transfer ahead of us has become apparent  — an estimated $224 billion will be passed on to their inheritors every year through bequests by 2050. 

That’s a $3.5 trillion boost for the next generation, according to a landmark report from the Productivity Commission.

Sounds like a big lottery win, right? Not exactly. For economists and financial experts, it raises some questions and challenges.

Here’s a few considerations.

All Australians need to get serious about their legacy and succession

For many Australian families, there’s a huge opportunity to set up future generations for success. But without intention and strategy, that opportunity will be lost.

Simply expecting that an out-of-the-box Will is enough to ‘do the job’ of smoothly transferring your estate and inheritance to your loved ones is misguided. 

It starts with getting clear about your wishes, understanding what’s most important to you and planning out how to best equip your loved ones for a secure and prosperous future.

Consider:

-        Education. Putting inheritance towards tertiary education for children is a great way to set them up for success.

-        Property. Some say Australia’s property market is ‘safe as houses’, and while no form of investment is perfect, property has a great track record of long-term, sustainable success that can set up generational wealth for families.

-        Other forms of investing. Planning for your wealth to continue to grow (whether that be through shares or other avenues) even when you’re gone will ensure that success does not stop with you.

-        Personal needs. Is there anything specific that loved ones need to thrive in life, that you can factor in to your strategy?

-        Execution. How will your wealth be transferred? For example, it isn’t smart to simply hand over a large nest egg to a young family member who may not be mature enough to handle the inheritance. You need to plan how exactly your assets will be distributed.

Be wary of tax

Australia is one of only eight developed countries in the world that does not tax inherited wealth and is firmly on the agenda for the federal government and other experts.

There are arguments that inheritances generally benefit those who are already rich. Because of this, the government could use an inheritance tax to bring in additional revenue that would allow it to reduce income taxes for the lower-middle income earners. The theory is that this would help with the issue of wealth inequality.

Other economists have suggested policy changes that would include charging inheritance tax on large estates only, while also adding incentives for passing on wealth to charities.

However, ‘Baby Boomers’ have worked incredibly hard to accumulate wealth, have already paid significant tax over their lifetime and have earned the right to set up their families’ future.

Wherever you stand on the issue of inheritance tax, it is clear that change is coming … soon. So it is crucial to work closely with your accountant and financial adviser to ensure your inheritance is set up tax effectively.

Planning for tomorrow

So, what next? 

The best time to plan your inheritance strategy is today. The sooner you get clear on your goals, and the legacy you want to leave, the sooner you can design a plan that not only sets up your loved ones for success but also makes the wealth transfer process as smooth as possible.

It is crucial to not go down this path alone. An experienced financial adviser will guide your every step, taking care of every detail, helping you gain peace of mind about the future.

Talk to the team at Calder Wealth Management to discuss your estate. Call us on (08) 8373 3333 to schedule your free initial appointment.

Written by Ben Calder at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.