Mar 10, 2023

How will an inheritance affect your children?

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Australia has emerged from a mix of wonderful cultures, many of which came to our country in search of a new life in a new country with great promise. The courage and commitment our forefathers brought with them from often difficult lives elsewhere has been the basis from which the Australian ethos of “never give up” has flourished.

Many started small businesses and worked long, hard hours to build successful family empires. A proportion of these have made good pickings for overseas giants with thick wallets.

The commitment and courage continued into the next generation, who are now adults in their 50s and 60s… the baby boomers. The boomers carried on the work ethic of their parents but along the way decided they wanted more life balance than their parents. Time-saving devices and leisure became essential commodities in their lives… but they worked hard.

Super Rich Kids

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Enter the X and Y Generations, the offspring of the baby boomers. Whether their parents inherited their wealth from the family business or their father’s 40-year employment career feeding a retirement fund, these ‘kids’ are potentially the rich Australian aristocracy of tomorrow. And this is where we focus our attention…

From a superannuation balance of $1,000,000, two adult children could receive a substantial return from a parent’s estate to supplement their incomes each year. This can make a difference between whether they tap into their forebears’ courage and go out there and make a name for themselves, or simply live off the trust income that will keep them comfortable if managed well.

How will this affect your children?

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So what if you’re a parent whose children, or even grandchildren, look like they might become “trustafarians” (living off a trust fund)? What is the best way you can ensure they don’t end up living off the fruits of your success and therefore missing out on what they can make of their own lives?

There are plenty of options and you should be discussing the possible outcomes with your financial adviser and lawyer, but just be aware that if you have an allocated pension, this could pass to your dependents, ensuring that their lifestyle will change – and with many tax advantages. If this is your choice, you should be open with your children as to what they can expect after you die.

If you feel that this might affect their lives detrimentally (ie. spoiling their opportunity to make their own lives), you have the option to withhold payments until they reach a certain age. Interestingly, most trust funds are now stating age 25, or even older, for beneficiaries to receive payments. Usually by this age, the ‘kids’ have worked out what direction they will take in life and started a career, thereby not being so reliant on an inheritance.

Final words
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Either way, it is important to understand that there is nothing wrong with inherited wealth, as long as the inheritors are equipped to handle it. It might seem great at the outset, especially knowing that the wealth we have worked hard to achieve is going to those we love, but as the next generations come along, it might actually hinder their development.

Estate and Financial planning can be complex but are an essential requirement of financial management. If you need to discuss any current or potential needs, including setting up a testamentary trust or an allocated pension, come in and talk with us about the many options for your life and the future lives of your family members.

Additionally, if you would like your kids to learn more about financial Planning so that they plan for their future, please forward our details onto them. All children of existing clients are entitled to a free initial meeting on Financial Management fundamentals.

General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation, or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
iPlan Financial Services Australia Pty Ltd Corporate Authorised Representative 291288 of Futuro Financial Services Pty Ltd ABN: 30 085 870 015 AFSL/ACL 238478

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