Challenges of intergenerational transfer of wealth

By David Baruffi, Financial Advisor

This article was originally published in The West Australian ‘Secure Your Future‘ insert on 21 August, 2017.

We are about to see the greatest intergenerational transfer of wealth in history as baby boomers collect inherited wealth and start to plan to pass on their wealth to their children.

Two questions arise

  1. Should you share your wealth with your children? If you can afford it, by all means be generous with your children. However it is important to consider retaining enough money to support your current lifestyle and future aged related expenses. By sharing your wealth with your children you may also be denying your children the opportunity to become financially independent. At some stage your children should be looking to grow up both emotionally and financially. Also, by passing on money to your children you may be delivering a windfall to your children’s creditors and ex-spouses.
  2. How should you go about it? Consider establishing a family trust. That allows you to retain control of the funds (by being the trust’s appointor and trustee), providing protection from your children’s creditors or ex-spouses while allowing your children to benefit from the earnings from the investments and distributions. On your demise the control of the funds can be transferred to your children with few tax issues.

Before helping your kids buy a home, there are a number of things to think about.

Younger generations are more mobile than previous generations.  They are more likely to change jobs and move cities than the current baby boomers. You could end up helping your children to buy their first home and be expected to help them buy their second third and fourth. If you really want to be of assistance, consider helping them with their rent or mortgage repayments instead.

The other practical assistance you can provide is paying for their health and private insurances.

In the case of them not actually being bullet proof (and potentially suffering with a major illness or accident) personal insurances can be a financial life saver.

Finally, the most common form of wealth transfer is through your Will.

However, this may mean your children don’t receive any funds until they are well into retirement. Wills can also be contested. Funds held in a trust do not form part of your estate so are not controlled by your Will.

As you decide how to pass on your wealth, it is important to think about these key questions. Be sure to consider your financial situation and needs before making any decisions based on this information.

Contact us if you have any questions about intergenerational wealth transfer or if you would like to discuss your personal financial plan.

David Baruffi is an authorised representative and credit representative of AMP Financial Planning. Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an authorised representative and credit representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee (AFSL / ACL 232 706).