Wealth transfer has become a hot topic at the dinner table for many Australian families. The strong performance recently of the share and property markets has led to significant wealth gains for many Australians, putting them in a favourable position to offer more financial support to their children. As a result, there is a growing desire among parents and grandparents to assist their children and grandchildren in their living years, aiming to bridge the wealth generation gap sooner. This shift goes beyond a traditional inheritance, with families now actively discussing ways to provide a financial boost or head start to their loved ones.
Wealth transfer methods
There are several common strategies that grandparents and parents use to distribute their wealth to younger generations.
1. Gifts for home purchases
You may be aware of the challenges younger generations face when trying to enter the current property market. One of the most popular strategies is to provide financial assistance for a home deposit.
2. Paying for financial advice fees
Wealth transfer isn’t always about the dollar, it’s also often about investing in the next generation’s financial acumen. Covering financial advice fees to advise your children and grandchildren can be a valuable cash gift. This investment in financial knowledge can provide long-term benefits, helping your children and grandchildren to make informed decisions about their finances.
3. Paying trust distributions
Distributing funds through a trust can be an effective way to manage wealth transfer. This strategy allows you to provide assistance while shifting the tax responsibility to the beneficiary. By doing so, the financial support becomes more equitable, as the tax burden is handled by the recipient rather than the giver.
4. Contribution to their superannuation
Leveraging superannuation can offer both immediate and future benefits. By taking advantage of co-contribution rules and the tax advantages of superannuation, you can make contributions to your children’s or grandchildren’s superannuation accounts, enhancing their financial security and providing long-term growth potential.
5. Paying for secondary education
With rising education costs, grandparents often step in to help with funding secondary education. In Victoria for example, it is reported that 70% of students have school fees paid by someone other than their parents. This support benefits not only the children and grandchildren but can also alleviate some financial pressure from the parents.
6. Setting up charitable funds
Establishing charitable funds can be a meaningful way to support causes you care about while also involving your children or grandchildren in charitable efforts. This strategy can enhance philanthropic efforts and foster a sense of giving among younger generations.
As wealth transfer becomes a more prominent and proactive aspect of family financial planning, understanding the various strategies and their implications is important. Wealth transfer strategies can have significant tax implications and financial consequences. Clear, open communication with your family about these strategies can help prevent unexpected financial implications and provide meaningful support to your loved ones while managing potential financial risks.
For more information on how we can tailor strategies to support the transition of your wealth to the next generation, contact your local William Buck Wealth Advisor.
