The Great Wealth Transfer
This month my granddaughter turned one. I jokingly let my kids know that for her birthday, I was changing my Will to leave everything to her—after all, she appreciates my hugs far more than they do! That got a good laugh, but it also got me thinking about something more serious: estate planning.
After 30 years of managing clients' money, I’ve seen some eyebrow-raising estate planning decisions that, despite the best intentions, led to major issues when wealth was passed on to the next generation. In this article, I want to share some of those insights and offer practical tips for managing family intergenerational wealth.
Research has shown that Australians are set to inherit $3.5 trillion in the next 20 years in the biggest wealth transfer in our history. In my discussions with clients, we all agree that our kids, as much as we love them, are probably not emotionally prepared to be handed millions of dollars in superannuation, property and investments. There are also children that are expecting assets they may not get.
Estate Planning Gone Wrong
One case that really stood out to me happened when I worked in New Zealand. My client owned a large farm in the South Island. They had seen tough financial times but had finally paid off the debt and were in a great position. The family had worked hard to keep the farm alive, and the parents decided to leave the farm to their son, who worked on it full-time. Meanwhile, their two daughters, who were married and living elsewhere, were each to receive a unit in town.
When I asked if the family is ok with this, the parents were quick to dismiss the question. "It’s not up for discussion," they said. They assumed that because their son had put in the hard work on the farm, and they had already supported their daughters with education and home deposits, everyone would understand and be happy. The difference in the estates, however, was a staggering $5 million.
This situation was a ticking time bomb. When their father passed away, their well-intentioned plan crumbled. The daughters were furious at what they saw as a grossly unfair division of assets. They felt undervalued and excluded, despite the financial support they had already received. What followed was a long, bitter legal battle that tore the family apart. The son struggled to keep the farm, the daughters fought for a larger share, and the legacy that the parents worked so hard to build was reduced to ashes in a courtroom.
4 Lessons in Wealth Transfer
This could have been avoided with some forward planning, open communication, and a deeper understanding of family dynamics. Reflecting on this, I believe successful wealth transfer hinges on 4 key elements:
Lesson 1: Well-structured estate documents
The key part of wealth transfer is to ensure you set the structures up correctly so that situations out of your children’s control do not erode all the hard work you have done. The unpleasant topics of divorce, bankruptcy, drug dependency, gambling or controlling spouses are situations you do not want to find your children in, however each of these can instantly see your life’s work head in a different direction than you had planned.
A colleague of mine* coined this ‘the risks of passing wealth’. We recommend that wealth needs to be passed safely and set to be managed well, before it lands in your children’s names.
Lesson 2: Communication
Assuming that your family will simply "understand" your decisions is a recipe for disaster. Talking about money and inheritance can be uncomfortable, but it’s essential. Have open discussions with your children about your plans, why you’ve made certain decisions, and what you hope for them in the future. Involve them in the conversation early so that there are no surprises down the track.
Lesson 3: Education
Having financially literate children who understand how to manage wealth for future generations is critically important. Teaching your children financial literacy is crucial to ensuring that the wealth you’ve built is preserved and managed responsibly. Work with professionals who can help guide the next generation in managing wealth for the long term.
Lesson 4: Don't rule from the grave
While it's natural to want to protect your family and ensure that your wealth is used wisely, avoid the temptation to control every aspect of how your assets are handled after you're gone. Overly restrictive conditions such as dictating when or how your beneficiaries can access their inheritance can cause resentment and even lead to legal battles. It's important to trust them, while offering support through proper structures like testamentary trusts to safeguard against major risks such as bankruptcy or divorce.
Start with a Conversation
DWL Financial Services has been in business for over 40 years and now manages the wealth of 2nd, 3rd and soon 4th generations. We are well placed to facilitate wealth management and transfer discussions.
Whether you’re just beginning your estate plan or need a second look at your current strategy, we’re here to help. Book an obligation free consultation with one of our advisers today, and let’s ensure your wealth is transferred smoothly, your legacy is preserved, and your family’s lives are enriched for generations to come.
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