intergenerational wealth transfer beneficiaries waitingIntergenerational Wealth Transfer: an Estate Planning issue…

Over the next couple of decades an intergenerational wealth transfer involving billions of dollars will pass from the ‘baby boomer’ generation to their descendants. The effectiveness of intergenerational wealth transfer will generally be measured by the tax effectiveness of the strategy resulting in the transfer of that wealth.  Some families will initiate the transfer whilst the holders of the assets are still alive.

Strategies they might use, include –

  • pre-death transfer by gift;
  • through family business structures; and
  • death benefit nominations in superannuation and life insurance policies.

Others will arrange their affairs through a carefully structured Will. The unfortunate outcome for those who don’t plan ahead, will be a transfer through their intestacy. Our website Library article on intestacy was well received and prompted a few to undertake the Estate Planning process.

Is Estate Equalisation an issue?

Two significant considerations when intergenerational wealth transfer is being considered, are:

  • how fair is the transfer relative to other beneficiaries to the estate; and
  • what tax consequences arise from the transfer in the prevailing circumstances?

In too many circumstances, the efforts to achieve the first of these concerns equitably is frustrated by the operation of the taxation laws. This is an issue both at the personal income tax – and at the capital gains tax, levels.

Even if the intention is not to provide equally for each of the beneficiaries/ dependants, care must be taken in arranging the transfers so that the desired effect is achieved. One strategy to achieve the desired outcome is the use of life insurance products.

Those transfers that take place pre-death can be evaluated and if needed, adjusted to give desired effect. Beyond that however, the effectiveness of estate planning will be the determinant as to how well the transfer mechanism works for your intended beneficiaries.

Other Intergenerational Wealth Transfer issues to consider

Some areas of concern that you should be watching out for include whether:

  • real property is a pre-CGT asset (or, it has a concessional exemption attaching);
  • superannuation beneficiaries nominated are dependants for taxation purposes; and
  • the control of structures that own assets is appropriately ‘managed’.

The property and superannuation issues are ‘relatively’ simple matters to deal with, but the appropriateness of ongoing management of business structures can be quite a difficult challenge – especially when valuable assets are locked up in those structures. Ownership of those assets remains with the entity post-death and management/ control is the best that the beneficiaries can look forward to, at least in the short-term. (For more about what assets can be bequeathed in an estate plan, refer to this article in our 13-part series on Estate Planning.

Looking for guidance on intergenerational wealth transfer matters?

The experienced wealth management advisers at Continuum Financial Planners Pty Ltd are well able to assist you with ensuring that intergenerational transfers of wealth within your family are made effectively – ‘we listen, we understand and we have solutions‘ as to how to achieve your financial goals. Phone our office (07-34213456), or Contact Us to discuss any concerns you have in relation to these matters – whether for you as a potential beneficiary; or as a deponent of wealth wanting to ensure special needs are met in the process.

(This article was first published in August 2013; it has occasionally been updated/ refreshed, most recently in December 2020.)