How might an inheritance affect your children?

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 have 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 has 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

Enter the X and Y Generations, the offspring of the baby boomers. Whether their parents inherited their wealth from the family business or a parent’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 a trust income that will keep them comfortable if managed well.

How will this affect your children?

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 advisor and lawyer. For example, if you have an allocated pension, this and its many tax advantages could pass to your dependents, ensuring that their lifestyle will change. If this is your choice, you should be open with your children as to what they can expect after you die.

If you feel it might affect their lives detrimentally (i.e., 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. By this age, ‘kids’ have usually started a career and worked out what direction they will take in life, thereby not being so reliant on an inheritance.

Either way, it’s 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.

Where to next?

Estate planning is a complex but 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, your financial advisor is a good place to start.

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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