What if one of the greatest gifts you could leave your grandchildren wasn’t just money, but opportunity, security, and the freedom to make wiser choices throughout their lives?
And what if you could pass on that wealth in a way that strengthens family harmony, protects vulnerable beneficiaries, avoids unnecessary tax, and preserves your intentions long after you’re gone?
More and more Australian families are asking these questions.
With an ageing population, rising living costs, and big-ticket expenses like education and housing soaring faster than wages, many grandparents want to help the next generation get ahead, but they don’t want the taxman to take a disproportionate slice.
After three decades advising families on intergenerational wealth transfer, I’ve found that successful legacies are built on a mix of structure, timing, and strategy.
Here is a roadmap of the most effective approaches to pass on wealth tax-efficiently and responsibly.
Trusts – the backbone of flexible estate and legacy planning
Trusts remain one of the most powerful tools available to Australian families, mostly because they allow you to separate control from benefit.
- Discretionary (Family) Trusts
These are the workhorses of Australian wealth planning. When investments or a business sit inside a discretionary trust, the trustee can distribute income each year to any beneficiaries – including grandchildren.
Just remember that children under 18 face punitive tax rates on unearned income, so distributions to minors require careful planning.
A major advantage is that you (or another trusted adult) can retain control of the capital until the grandchildren are mature enough to manage money wisely.
- Testamentary Trusts – your estate’s secret weapon
A testamentary trust is created in your Will and springs into action when you pass away.
These structures supercharge tax benefits because income paid to minors from a testamentary trust is taxed at ordinary adult rates, not punitive minor tax rates.
This means a grandchild can receive up to the full adult tax-free threshold ($18,200 in 2024-25) every year tax-free, which is a massive long-term advantage.
Testamentary trusts also:
- protect assets in divorce or bankruptcy
- keep wealth safe from a teenager’s impulsive choices
- preserve capital for future generations
- Protective Trusts and Special Disability Trusts
Where a beneficiary has special needs or limited financial capacity, a protective trust can provide lifelong support by controlling how income is delivered.
These structures may also come with tax concessions for both the giver and the beneficiary.
Lifetime gifting – generous and powerful, but with important rules
Australia does not impose a formal gift or estate tax, so gifting cash, shares, or property is theoretically tax-free. But two big considerations apply:
- Centrelink Deprivation Rules
Pensioners can generally gift only $10,000 per year (or $30,000 over five years) without penalty. Amounts above this count as a “deprived asset” and reduce pension entitlements. - Capital Gains Tax (CGT)
When gifting assets other than cash, you trigger CGT on the embedded gain. Smart timing – such as using a low-income year or applying the 50 percent CGT discount – can reduce the impact.
Strategic early gifting still shines
Paying school fees or assisting with a first-home deposit now removes those funds (and their future taxable income) from your estate.
Business owners may also be able to fund children’s education through advantageous tax strategies.
Superannuation – incredibly tax-effective, but tricky at death
Superannuation often becomes the largest asset retirees hold, yet it behaves very differently to other assets when passed to grandchildren.
Adult grandchildren are considered non-dependants, which means the taxable portion of your super may be taxed at up to 17 percent on death.
- Also read:How does my super get taxed?
- Also read:Why Testamentary Trusts Aren’t Just for the Rich: A Guide to Safeguarding Your Legacy Introduction
- Also read:The Inheritance Tsunami: What the Baby Boomer Home Legacy Means for Future Generations
- Also read:Here’s what you need to do if you’re planning to give or receive an inheritance?
- Also read:Why You Should Set Up a Family Trust
Life insurance held inside super can also be taxed at 32 percent.
Two strategies that significantly reduce this leakage
- Withdrawal and recontribution (after 60 and retired)
You can withdraw part of your super tax-free and recontribute it as a non-concessional contribution. This boosts your tax-free component, meaning more passes to beneficiaries without the death-benefit tax sting. - Drawing out super before death
Clients with terminal conditions can withdraw their entire super balance tax-free once over age 60. Holding the proceeds in their own name or a trust allows the funds to pass on without super’s death-benefit taxes.
Binding death nominations ensure the fund trustee follows your wishes.
Pensions to dependants
Where strict conditions are met, certain financial dependants – even minor children – can receive pensions taxed at far more favourable rates.
Education and Investment Bonds – the quiet achievers of legacy planning
Investment bonds are often underestimated but incredibly effective.
Their earnings are taxed internally at a maximum 30 percent, but franking credits and capital gains concessions usually reduce the real tax rate to 15–20 percent.
If you hold the bond for 10 years and follow the contribution rules, withdrawals are completely tax-free.
This makes bonds ideal for:
- education funding
- first-business capital
- long-term gifts with tax-efficient growth
They also bypass probate, preserving privacy. Pairing a bond with a testamentary trust adds a powerful asset-protection layer.
Capital gains planning when passing family assets
When transferring real estate or shares, timing and valuation matter.
- Pre-CGT assets (acquired before 20 September 1985) remain CGT-free if sold before death.
- When inherited, the beneficiary receives the original cost base for post-CGT assets.
- The main residence exemption allows sale of the family home CGT-free within two years of death.
- Always obtain market valuations at the date of death to defend future tax positions.
Wills, equalisation and avoiding family conflict
Your Will is more than a legal instruction – it’s your final message to the people you care for. A well-structured Will should:
- incorporate testamentary trusts
- name alternate executors
- explain decisions where inheritances differ
- consider using insurance to equalise uneven distributions
Importantly, not all assets pass via your Will. Superannuation, family trusts, and business structures all have separate rules and must be carefully aligned.
Blended families and difficult relationships require particularly thoughtful planning.
Philanthropy – giving the next generation purpose, not just money
Including charitable giving in your legacy can strengthen family values and meaning.
A Private Ancillary Fund allows future generations – including grandchildren – to participate in directing donations, anchoring philanthropy into the family story.
The Governance Toolkit – the documents that hold your plan together
A complete estate plan includes more than just a Will meaning you should regularly review:
- Enduring Power of Attorney
- Advance Care Directives
- Guardianship appointments
- Superannuation instructions and death-benefit documentation
- Executor arrangements, especially for complex estates
Life milestones like marriage, births, death, divorce, or business exits are clear triggers for a review.
Final thoughts
Passing on wealth isn’t simply a financial task – it’s about shaping the future for those you love.
With the right blend of trusts, tax-effective structures, and thoughtful timing, you can ensure more of your wealth reaches your grandchildren rather than being lost to tax or family disputes.
Because every family’s situation is unique, always seek guidance from a knowledgeable estate-planning solicitor, tax professional, and financial adviser.
And given the complexity across tax, super, trusts, and asset protection, a skilled wealth strategist can help you ask the right questions – and make sure the answers lead to a legacy that truly lasts.
