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The $3.5 Trillion Wealth Transfer

The Productivity Commission Report on wealth transfers in Australia tabled earlier this year estimates that Baby Boomers (Boomers) will transfer $224 billion per annum via inheritance through until 2050.

The Boomers with smaller families than their parents, have fewer heirs, thereby creating an inheritance bonanza for younger generations. The Millennials and Generation Z (those born from 1995 to 2009) will be the greatest beneficiaries.

Statistics tell us that of that wealth, 70% will be lost by this generation and a total of 90% lost by the generation after that.

This paints a sobering picture and why is this the case? There are a number of reasons which include the “values” associated with wealth that are passed from generation to generation. What passes easily to a younger generation is not always appreciated by the recipient. Secondly, financial literacy is increasingly an issue. While we have an academically educated younger population, the degree of financial literacy associated with this age group is not high. The pathway to academic education was a different pathway compared to their forebears who were generally not university educated and learned on the job. Thirdly, and to the issue of this article – there is very little Estate Planning put in place.

For ease of definition, Estate planning involves the holistic planning of assets, wishes and entitlements at every stage of your life. It is a Plan that brings together the combination of cashflow, existing assets, life insurances, superannuation and business assets and allows planning for every contingency that should arise through life’s journey.

It is not a mortality conversation and only associated with Will making.

In Australia 56% of households with associated wealth greater than $1,000,000 do not have an estate plan in place. And of those that do, over half, have not discussed the plan with the beneficiaries of the plan – their children. This leads to contestation of estates and adverse tax and legal consequences. Further, many people who have put in estate plans have done so using simple Will structures without thought to the tax and benefit structures that exist in the market place.

Successful estate planning works on the adage of the “right monies to the right people at the right time” and you only have one opportunity to get it right.

Speak to one of our financial adviser