Back in 2021, the Productivity Commission’s inquiry into philanthropy brought to light the staggering scale of Australia’s impending intergenerational wealth transfer.
It is anticipated that by 2050, Baby Boomers will pass on approximately $224 billion annually, resulting in a total wealth transfer of about $3.5 trillion to younger generations.
Three years down the track, and we are certainly seeing signs to indicate that the “great wealth transfer” is beginning to pick up momentum.
However, despite the great wealth transfer being in the public consciousness, most families are not doing the preparation required for smooth and successful wealth transfer.
This can be seen in the number of courtroom inheritance disputes each year, which sources indicate have been accelerating since 2005. While there’s no single factor driving this trend, a lack of clear succession and estate planning are certainly dominant drivers. Add complicated family structures and potential family conflict into the mix, and that’s a recipe for major problems.
A wealth transfer dispute is always a sad situation. Though perhaps even sadder is knowing that with well-considered planning and communication, most of these cases could be avoided.
Every family is unique and the way they approach multi-generational wealth transfer will be equally unique. However, in our decades of advising wealthy individuals and facilitating wealth transfer, we have come to recognise that the most successful transfers typically share a number of similarities.
Here are four key strategies for a smooth transition of wealth from one generation to the next:
1. Nurture financial and business acumen as early as possible
It’s easy to fall into the trap of thinking about wealth transfer as an ‘event’—but in fact, it’s a journey. Successful wealth transfers have the groundwork laid for them over decades of collective involvement from family members, trustees, and trusted advisors.
Commonly overlooked, one of the most important decisions in the journey to successful intergenerational wealth transfer, is choosing to involve the next generation in family business matters as early as possible.
The earlier they are involved, the better. Even if they aren’t yet old enough to participate in the occasional business meeting, you can bring them along to observe at first and gently over time, invite them to participate.
One of the families I advise does this beautifully. They have had their children sitting in on their annual business meetings since they were teenagers. In the beginning, a lot of the discussion went over the children’s heads. But any time one of the children asked a question, the family would pause the meeting to answer the question fully and thoughtfully.
Ten years later, I’ve seen those teenagers blossom into adults who really do have a good understanding of business.
It’s hugely unfair to parachute a young person who has never been provided with a business or financial education into a very complex financial situation. So the earlier that education starts, the more equipped the next generation will be when the time comes for them to step into more active roles within the business.
2. Have a plan
The importance of having a clearly defined plan for navigating intergenerational handover cannot be overstated.
The moment that any wealthy individuals/business owners begin to entertain the thought of one day passing the business over to the next generation, there is a foundational body of questions they, with support of their trusted advisor, should be asking:
- Firstly, Can they? Do they have enough assets to afford them the ability to hand the business over to the next generation?
- Secondly, what are the consequences of this transfer? Do we need to consider costs like stamp duty and capital gains?
- Thirdly, what are our timeframes for this transition?
- And fourthly, what scaffolding do we need around the next generation to allow them to be successful?
These items are not a checklist to work through, but tools to assist in painting the initial big picture. It will be completely unique for every family.
In some cases, the transition timeframe will be determined by the next generation’s readiness. In others, it’s a wealthy individual’s ‘magic number’ that will influence the timeline—this figure might be the target share price value, the amount in their super account, or it might take a different form altogether.
When it comes to the specific details of generational transition and succession planning, there is no sole influencing factor—such a plan is shaped by a combination of personal, relational, and financial factors.
3. Factor in the emotional and interpersonal aspects
Discussions about legacy and wealth transfer are innately sensitive and just about every intergenerational transition will elicit an emotional reaction from those involved at some point.
Particularly in cases where adult children are involved, there is almost always a range of emotionally charged responses. Sometimes, it can lead to recounting events that happened 30+ years ago and ‘who did what to who’ in the backyard as kids. Emotional responses may surface, but ultimately, it’s important to have the resources in place to keep emotion out of it as much as possible.
In these situations, our role is that of the non-emotional bystander. This allows us to point out and assist in resolving issues before they become actual problems. It also means facilitating good, productive conversations so that after those important decisions have been made, everybody is still happy to sit around the table for a meal together.
4. Share the values and vision
Successful intergenerational transitions involve more than just the transfer of assets; they are about imparting values and continuing legacies.
Encouraging the next generation to understand and embrace their family’s values is essential because not only does it help ensure the family’s legacy continues on, but also assists family members in comprehending the reasoning behind decisions.
Family governance plays a key role in this process. For some of the large family businesses we assist, establishing a family board has also proven to be an effective strategy. These boards serve not only as decision-making entities but also as guardians of the family's collective vision, steering its future direction. This approach not only brings family members in line with shared objectives but also helps them navigate the complexities of multi-generational business and family matters with greater clarity.
It’s a real privilege to assist families with creating a real legacy—where they pass on not just their wealth to the next generation, but also their values.
In the early days of my career, I had the privilege of assisting a couple in drafting wills which aimed to enable their grandchildren to purchase their first homes. Today, I find myself advising the second generation on establishing investment bonds for their grandchildren, ensuring those foundational values now endure across four generations. As an advisor, there is nothing better than being involved in that.
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If this article, or the topic of the great wealth transfer, prompts you to reflect on your family's legacy and wealth transition plans, please reach out. Let's explore together how you can build a lasting legacy for your loved ones.
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