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As financial advisors, we spend years working closely with clients to help them build a portfolio of wealth. Many of our clients are working towards a figure that will deliver freedom of choice or enable them to change their lifestyle. It’s incredibly rewarding to be able to tell our long term clients that they’ve reached the magic number they’ve worked so hard to achieve. Being able to realise goals they set years and years ago is an emotional milestone, particularly when these goals relate to sharing wealth with their children, and assisting them to achieve their own goals.
Reaching these significant moments often leads to discussions about estate planning. In recent years, the conversation has started to shift towards how to support loved ones now or how they can contribute to causes that align with their personal values, while still leaving a meaningful legacy. Many of our clients are happy to follow the traditional route of leaving an inheritance, but we’re seeing a growing trend of clients who want to see the impact that their generous gifts have, both for their families and for the organisations they support.
For high-worth individuals who have sufficient capital, it’s an important question to consider: do I want to die with millions in my estate, or do I want to see the positive impact my wealth has on the next generation of my family while I’m still alive? As Australia’s housing market continues to tighten, many of our clients are witnessing their adult children struggle to break into the property market and secure their first home, or watching as they juggle the financial impacts of low wage growth, the costs of raising children and rising interest rates. Increasingly, clients are weighing up the benefits of gifting now, while they’re alive to share in the joy that their gift brings.
One client of mine had an adult daughter who had struggled with serious mental health issues throughout her life. She was in the process of getting her health back on track, but my clients were concerned whether she would ever be able to buy her first home given the impact her health had on her career. They wanted to see her set up and stable, to give her the best chance of long-term recovery. Instead of leaving her a large inheritance, they gifted her the funds to purchase a small unit, allowing her to get back on her feet and restart her life and career with confidence. For them, the financial impact wasn’t really a consideration—being able to support their daughter and see the immediate impact their gift had on her life was what mattered to them. The peace of mind they enjoyed knowing that she was set up and safe was invaluable.
One caveat to these decisions is that life’s challenges occur for everyone. If you gift a significant sum to an adult child, and they subsequently go through a relationship breakdown or divorce, your gift will be considered a shared asset that can be divided or lost in the settlement. This is where consideration should be made around whether it should be given as a gift, or as a loan, or held as an inheritance in the estate. In these circumstances, if you decide to gift or loan an amount or contribute to the purchase of a property, it’s important to consult your solicitor and financial advisor.
Of course, gifting large sums of money isn’t for everyone—it’s not feasible in all situations and there’s no obligation to do so. We’ve had clients who’ve given away millions of dollars in their last few years, while others have chosen to stick to the traditional inheritance structure. Others have elected to share their wealth through family holidays, creating memories and sharing experiences that would otherwise not be possible, or by covering education costs such as private schooling or university. It’s a deeply personal question, and the right answer will vary based on each individual and their family circumstances.
Having the freedom to give generously and support causes close to their heart is a major motivation and milestone for many of our clients. Charitable donations are tax deductible, however this is generally viewed as a bonus rather than a deliberate tax-reduction strategy.
For philanthropically-minded clients who want to formalise their giving, or want to leave a legacy as a family, Private Ancillary Funds or family foundations can provide a structure and mechanism to give with intention. If your financial projections are solid, and you have sufficient wealth to meet your personal needs and provide for your family, additional funds can be used to establish a philanthropic foundation. Like other trusts, a family foundation has directors and trustees who manage decisions around the use of funds.
Many family foundations are created with the goal of supporting organisations and causes close to the family’s heart, with family members meeting to decide on how they will gift each year. Some family foundations have a specific focus or objective, such as health research, while others are more fluid and respond to changing social and environmental needs—the structure ultimately depends on the family’s wishes.
All donations from a Private Ancillary Fund are tax deductible, and the income generated within the fund is tax-free. For many families, it’s a rewarding and personally fulfilling way to share their wealth beyond the immediate family in a way that leaves a legacy and makes a difference to the lives of others.
Gifting is a purely personal decision—there’s no gift tax in Australia, meaning you can give freely without tax implications for you or the gift recipient. As mentioned, there are tax deductions associated with donating to registered charitable organisations, however these aren’t generally considered a motivation for gifting.
While there’s no negative tax implications, there are possible impacts in other areas, such as aged care costs and partial pensions. As with all financial decisions, it’s important to seek guidance on how this might affect your future financial plans. Clear, consistent projections about how long your capital will last, your plans for your retirement years, your health situation and family dynamics will all play a role in how, when and if you can comfortably incorporate gifting into your financial strategy.
If you’re considering how to incorporate philanthropy or family giving into your financial plans, we’re here to support you. Please get in touch with our wealth management team for a confidential discussion.
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