Key takeaways
Passing on wealth is about creating freedom, security, and values for future generations, not just financial gifts.
Without a structured plan, much of your generosity can be lost to taxes, creditors, or poor financial decisions by heirs.
Wealth transfer isn’t just about tax savings—it’s about intentional, strategic planning that reflects your values and protects your legacy.
The following is general information only and you must seek personal advice on your specific circumstances before implementing any strategy.
You’ve worked hard to build your wealth.
You’ve made sacrifices, taken calculated risks, and created a financial foundation that has supported your family.
Now, as you look to the future, you might be thinking: “How can I help my grandchildren enjoy the benefits of this prosperity?”
Whether it’s funding their education, helping with a first home deposit, or simply ensuring they have a strong financial start in life, passing on wealth can be one of the most rewarding things you’ll ever do.
But here’s the catch – doing it without careful planning can mean much of your generosity is lost to tax, creditors, or even spent unwisely by recipients who aren’t ready for such responsibility.
The good news is that with the right strategies, you can preserve and grow your wealth as it transfers to the next generation.
Let’s explore how you can create a legacy that isn’t just about money, but about giving your family the freedom, security, and values to thrive for generations to come.
Trusts: the cornerstone of smart estate planning**
When it comes to passing on wealth, trusts are one of the most powerful tools in your kit.
At Metropole Wealth Advisory, we regularly use a range of trust structures to help families protect assets and distribute income tax-effectively.
Discretionary (Family) Trusts
These are the workhorses of Australian wealth management.
By holding investments or even a family business inside a discretionary trust, income can be distributed annually to beneficiaries, including your grandchildren.
However, be mindful: minors under 18 are subject to punitive tax rates on unearned income, so distributions need to be carefully managed.
The key advantage is control – you (or another trusted adult) can decide when and how assets are accessed, protecting them until beneficiaries reach maturity.
Testamentary Trusts
Created through your Will and activated on your death, these trusts take things up a notch.
Income distributed from a testamentary trust to minors is taxed at adult rates, allowing each grandchild to potentially receive up to $18,200 tax-free every year (2024–25 thresholds).
This not only delivers significant tax savings but also shields assets from divorce settlements, creditor claims, and impulsive spending.
Protective or Special Disability Trusts
For grandchildren with special needs or limited financial literacy, these trusts can provide steady income while preserving capital for lifelong care.
There may also be tax concessions for both you and your grandchild.
Lifetime gifting: powerful, but plan carefully
Australia doesn’t impose gift or estate taxes, so on the surface, giving cash, shares, or property might seem simple.
But two key rules mean you need to tread carefully:
- Centrelink Deprivation Rules: Pensioners can only gift up to $10,000 per year (or $30,000 over five years) without penalty. Anything above this is counted as a deprived asset.
- Capital Gains Tax (CGT): Gifting non-cash assets like property triggers CGT on any embedded gains. Timing gifts in a low-income year or leveraging the 50% CGT discount on assets held for over 12 months can help reduce the tax sting.
That said, strategic early gifting – such as paying school fees or helping with a home deposit – can remove these amounts (and their future earnings) from your estate, potentially lowering tax down the track.
For business owners, there are even more advanced strategies to fund education or other expenses in a tax-advantaged way.
Superannuation: friend and foe in wealth transfer
Superannuation is often a retiree’s largest asset and carries generous tax concessions.
But here’s a crucial point: adult grandchildren are classed as non-dependants under super law, so any taxable component they inherit is subject to a 17% tax (15% plus Medicare levy).
Life insurance proceeds from Super are hit even harder, with taxes of up to 32%.
To minimise this “death tax,” consider:
- Withdrawal and Recontribution: Once you’re over 60 and retired, you can withdraw part of your balance tax-free and recontribute it as a non-concessional contribution. This increases the tax-free component for your heirs.
- Draw Down Before Death: For those in palliative care, withdrawing the full balance and moving it to a trust or personal account means your heirs inherit without super’s death benefit tax.
- Investigate whether your grandchildren can be identified as tax dependents.
Binding Death Benefit Nominations also ensure your wishes are followed and keep benefits out of probate.
Investment bonds: the quiet achievers
Investment bonds, offered by friendly societies and insurers, are like tax-paid envelopes.
Earnings are taxed internally at up to 30%, but franking credits and discounts often reduce the effective rate to 15–20%.
The magic happens if you hold the bond for 10 years (and follow the 125% contribution rule). After that, withdrawals are completely tax-free – perfect for funding university fees or helping a grandchild start a business.
Plus, bonds can bypass probate and keep your affairs private. Pairing them with a testamentary trust combines growth with protection.
Capital gains tax planning on family assets
When passing on property or shares, timing is everything:
- Pre-CGT Assets (before 20 September 1985): These remain CGT-free if sold prior to death; however, beneficiaries will face CGT on any future sales.
- Post-CGT Assets: Beneficiaries inherit your cost base for CGT purposes.
- Main Residence Exemption: Your family home can often be sold CGT-free within two years of death, but delays could lead to unnecessary tax.
Always obtain market valuations at the date of death to reset cost bases and avoid future disputes.
Wills, equalisation, and family harmony
Your Will is much more than just a legal document – it’s your final message to your loved ones.
Incorporate testamentary trusts, name alternate executors, and clearly explain any unequal inheritances (e.g., where one child works in the family business) to prevent resentment down the track.
Life insurance can also help “equalise” estates where physical assets (like a farm or business) pass to one heir and cash is needed for others.
Don’t forget: some assets (like super and trust control) pass outside your Will and require separate documentation. For SMSFs, pre-death planning is essential to ensure an efficient and tax-effective transfer.
Philanthropy: doing well by doing good
A charitable bequest can reinforce your family’s values and deliver tax benefits.
Establishing a Private Ancillary Fund allows grandchildren to take part in directing donations, creating a family tradition of giving.
The Governance Toolkit
A truly robust estate plan also considers:
* Enduring Power of Attorney
* Advance Care Directives
* Guardianship
* Executor appointments (critical for blended families or potential disputes)
This governance layer ensures your wishes are carried out smoothly, even in complex family situations.
A legacy beyond wealth
Transferring wealth is more than a financial transaction – it’s about stewardship. It’s about shaping the opportunities, values, and security of future generations.
By combining flexible structures like trusts, tax-efficient vehicles like super and bonds, and thoughtful timing, you can maximise what your grandchildren inherit and minimise wastage to taxes and disputes.
Every family’s situation is unique, and with laws constantly evolving, expert advice is critical.
At Metropole Wealth Advisory, we specialise in helping families navigate this complexity with confidence.
Click here now to arrange a complimentary chat about how we can help you secure your family’s future.
