I recently attended this year’s Golden Gavel, an event where young lawyers humorously tackle dry legal issues in a room full of fellow lawyers at a stand-up comedy club. One of this year’s topics was the impending intergenerational wealth transfer. The unfortunate lawyer who was asked to present on this topic bemoaned the fact that this ‘impending’ transfer has been flagged for decades but hadn’t seemed to have ever materialised.

I did chuckle, as I remembered back when I was starting out as a junior lawyer being told of this impending tidal wave. That was more than 25 years ago. Contrary to the jests, the reality is this wealth transfer is not just impending, but actively occurring. In Australia alone, around $1.5 trillion in assets have been transferred since 2001, with projections of a further $3.5 trillion transfer by 2050. [1]

This massive shift in wealth may seem elusive, like not seeing the forest for the trees, but in my experience, the evidence is unmistakable.

Historically I would have seen clients leave the wealth transfer to occur on death. Nothing was transferred to the next generation until the parents died. The focus was on getting the traditional estate planning documents right – most often the will. And testamentary trusts as a planning tool were seen as providing some opportunities.

Arrangements tended to be simpler back then. Sometimes there would be a family trust, but often wealth would be held directly by clients. Superannuation represented a small portion of the family wealth. Often the family home was the largest single asset.

 

times have changed

Times have changed, as have the approaches adopted by many clients to the transfer of wealth. Part of this is driven by clients not wanting to see the results of their hard work squandered by the next generation. In other cases, clients want the transfer to commence during their own lifetime – giving with a warm handshake rather than a cold one.

Other factors have also influenced the approaches adopted. The Global Financial Crisis saw some delaying the wealth transfer that might otherwise have happened sooner. In more recent times, the wealth transfer offers a potential lifeline. Rising housing costs, stagnant wages, and limited affordable childcare have squeezed younger generations. The older well-established generation has shown a willingness to help the younger generation out with purchasing a home, starting a business, or simply achieving financial security.

 

wealth is now more complex

The nature and complexity of wealth have also evolved. The quintessential family home is frequently overshadowed by assets in superannuation or other structures like companies and trusts, which often reflect a blend of historical decisions and contemporary needs. Additionally, the dynamics of modern families, including considerations for second marriages, relationship breakdowns, and potential legal disputes, add layers of complexity to estate planning.

In this evolving landscape, the role of advisors has become increasingly crucial. Many of my clients prefer a hands-on approach, opting for a staged transfer of business or entity control. This method allows for gradual exposure and involvement of the next generation, balanced with appropriate safeguards and asset protection strategies.

The aim is to facilitate a balanced transfer, mindful of tax efficiencies, legal complexities, and family dynamics. It also involves forward-thinking for future generations, ensuring that the transfer is not merely a financial transaction but a well-considered and emotionally sensitive process.

 

we’re here to help

The role of lawyers, accountants and financial planners is integral in guiding this process, ensuring it is not only successful but also respectful of the complex emotional and familial dynamics involved. All professionals collaborating with the client helps achieve the best possible outcome for all.

If you’re looking for advice on how to successfully navigate your own wealth transfer, get in touch with our legal team at legal@businessdepot.com.au or give us a buzz on 1300BDEPOT to discuss this further.

 

[1] 2021 Productivity Commission Report: Wealth Transfers and their Economic Effects

 

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General advice disclaimer 
The information provided in this article is a brief overview of the subject matter and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however, information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision and should consult an appropriate professional before making any decision.