Generational wealth transfer will mean surge in work for conveyancers

CONVEYANCERS could face a surge in off-market property transfers, and a call to assist in estate planning, as Australia’s great wealth transfer gathers pace.

That’s the message from financial planners dealing with retirees eager to help their kids onto the property ladder.

Baby Boomers and Gen X – born between 1946 and 1980 – will shift an estimated $3.5 trillion in assets to their offspring over the next two decades.

Assets like homes, other property, superannuation, shares, and cash savings.

Your kids and grandchildren will likely inherit that loot, but it could be years away (you hope!) But for many, the need is NOW… especially to buy that first home.

David Simon, Principal Advisor with Integral Private Wealth says, “What keeps me awake is concern for the next generation. They face significant stress in accessing the property market.”

Parents often help via the Bank of Mum and Dad. But experts say it’s time to consider a proper Generational Wealth Transfer strategy.

“Everyone should be thinking about some sort of estate plan,” says Robyn Langsford, KPMG’s Private Enterprise / Family Business lead. “Most people want to; they just don’t get around to doing it.”

That leaves 90% of Australian intergenerational wealth being transferred at death, with most beneficiaries over 50 – in many cases over 60 or 70 – well past their point of greatest need.

We’re talking about a lot of money changing hands. “That’s anticipated to generate something like 400,000 new millionaires in Australia,” says Langsford.

Ben Hillier, AMP Director of Retirement, calls it “an unprecedented wave of money,” generated by the 800 who leave the workforce each day.

Hillier wants Boomers to dig deep and spend up, maybe on the kids or grandkids’ housing deposits. Which now could be as little as 5 per cent.

“Retirees don’t have the confidence to spend at an aggressive rate,” he says, “because no-one wants to run out of money.”

But AMP research suggests the average retiree dies with 90% of their superannuation intact. Better, says Hillier, to see your wealth doing good while you’re alive.

“If we can get people gifting in their 60s, with their kids say in their 30s, and their kids in school, that can really help.”

There is no specific “gift tax” in Australia. You can give away as much cash as you like.

“Cash is the easiest thing to give away,” says KPMG’s Langsford. The recipient doesn’t have to declare it as income (the giver doesn’t get a tax deduction unless it’s to a charity.)

Beware: the gift of an asset, like shares or property, even crypto, could trigger capital gains tax or stamp duty, payable by the recipient.

Gifting business interests could also have complex tax implications: get professional advice.

Another consideration: if you receive the age pension, you’re currently allowed to gift up to $10,000 in a single financial year and up to $30,000 over five years.

Any more might be considered “deprived assets”, potentially reducing your pension.

Receipt of a large gift could also affect the recipient’s social security benefits. The ATO Community and Services Australia websites have more on that.

It’s a good idea to document any large gifts in case of legal disputes, questions from authorities, or marital breakdowns.

Parents who plan to leave their super to their children should beware: if the offspring are adults, they are unlikely to be considered dependents and liable for tax of 30% or more.

That’s another argument for giving cash gifts. Advisers tell of clients almost on their deathbeds rushing to transfer super into cash accounts.

“If you withdraw it the day before you die, there’s no tax,” says AMP’s Hillier. “The day after, it’ll be taxed.”

“Make sure you have a Power of Attorney,” he adds, “and declare your wishes to your beneficiaries.”

Transferring family wealth isn’t as simple as it might seem. It’s wise to consult a financial planner, tax expert or estate lawyer.

Conveyancers are liable to be involved in that planning. If a house is transferred from parents to one offspring, it will likely be an off-market property transfer.

If there’s more than one offspring, the house might be sold and the proceeds split.

Langsford: “From my perspective, it would be about that conveyancer highlighting the implications of the transfer, both from the tax and stamp duty perspective, but also the asset protection.”

It might be that the best thing Boomers can leave to the next generation is a well-considered financial plan.

“The more time they put into it, the better the outcome,” says David Simon. “It’s a bit of a pain in the bum, but definitely a very worthwhile exercise.”