Articles

Oct 14

The Intergenerational Wealth Transfer Windfall

Posted by Peter Marmara-Stewart at Monday, October 14, 2019

Over the next 20 years, an estimated 12.7 million people will benefit from the greatest transfer of wealth to occur1. All up, over $3.5 trillion will be bequeathed to the children and grandchildren of the Baby Boomer generation.

The boomtime generation

The Baby Boomer generation comprises of those Australians born between 1946 and 1964. They represent almost 25% of the Australian population1 and own 60% of Australia’s private wealth.2

The accumulation of wealth in this segment is because of:

•   high level of home ownership
•   steady increase in property values
•   years of stable economic growth
•   smaller families compared to previous generations
•   compulsory superannuation in the 1990s leading to substantial growth in retirement savings

In fact, in the last decade, the wealth held by the Baby Boomer generation has virtually doubled.3 

The net wealth of older households has grown substantially


The generation gap

The result is an increased gap with subsequent generations. This gap in wealth is likely to widen with declining rates of home ownership among younger Australians.

Another factor is in superannuation savings. In fact, current data suggests that some members of Generation X will not have enough superannuation savings to support their retirement lifestyle.4 

To make up this disparity, some may rely on receiving an inheritance to supplement retirement savings. Contributing all or part of an inheritance to super, or investing it in the non-super environment, may be an effective option for many. But for those that will not have this option, having a clear view of the amount you are likely to need to fund your retirement and working towards that goal is important.

Sharing the wealth

For those thinking about who to bequeath their assets to, effective estate planning becomes important. Having an effective plan can ensure that the right beneficiaries receive the right inheritance at the right time, and in a tax effective manner. A properly considered Will, and an appropriately drafted superannuation death benefit nomination, are two key instruments to ensure the appropriate transfer of wealth.

However, it is not unusual for disputes to occur over provisions that have been made in a Will. An analysis of 195 court decisions suggests that many of these disputes are because of changing family dynamics including previous spouses, children from previous relationships, and stepchildren, having expectations around inheritances.5 

A good plan is key

Not all estate disputes can be avoided, however careful planning and appropriate documentation will go a long way in avoiding disputes.

A transfer of wealth can provide an opportunity for financial independence across generations if managed properly.

A good level of financial literacy, coupled with appropriate financial advice, becomes extremely important to ensure that any financial windfall or bequest is not wasted.

1 Australian Bureau of Statistics (2016) ‘Talking ‘bout our Generations: Where are Australia’s Baby Boomers, Generation X & Y and iGeneration?’, <https://www.abs.gov.au/ausstats/abs@.nsf/ Previousproducts/3235.0Feature%20Article12014>
2 Ibid.
3 Source: Grattan Institute, ‘Generation gap: ensuring a fair go for younger Australians’ <https://grattan.edu.au/report/generation-gap/>
4 Hunt, K et al, ‘Intergenerational Wealth Transfer: The Opportunity of Gen X & Y in Australia’ Griffith University 2017.
5 Estate Contestation in Australia – An Empirical Study of a Year in Case Law, White, Tilse, Wilson, Rosenman, Purser and Coe. UNSW Law Journal, Volume 38(3) p.890