A comprehensive research paper was released by the Productivity Commission late last year, to improve understanding of the impact of inheritances and gifts on the distribution of wealth. It showed that inheritances and gifts more than doubled since 2002, and could rise four-fold in real terms between now and 2050, as household wealth grows and the population ages.
According to Commissioner Lisa Gropp, “We found Australians give away tremendous sums of wealth during, and at the end of their lives. Over the past two decades, the total value of wealth transferred was about $1.5 trillion, and about 90 per cent of that was inheritances.” While inherited wealth is only seen as a modest contributor to intergenerational wealth, the growth of assets, particularly of housing, has a much greater impact.
At TAG, we often see ‘wealth shock’ in children that receive an inheritance. This can lead to financial mismanagement and wealth erosion.
According to TAG partner, Michelle Griffiths, we should expose our children to investment decision making before they receive an inheritance. There are various ways you can do this. Here are two ideas:
- One approach is to set up a family SMSF. This provides the next generation with a safe environment to learn to make their own financial decisions. There can be up to 6 members in a SMSF. Find out more here.
- Another approach is gifting. Give some money to the children and guide them in how to make good investment choices. Through practise they will learn how to make sound financial decisions into the future.
If you would like more in depth knowledge on how to manage your inheritance and avoid wealth shock, look out for our Money Management webinar series coming soon.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.