By Michael Yardney June 23, 2024

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The Great Wealth Transfer: A Boom for Some, a Challenge for All

Property Investment
The Great Wealth Transfer: A Boom for Some, a Challenge for All

Key takeaways

As the baby boomer generation ages, a massive amount of wealth is being transferred to the subsequent generations.

This redistribution will have far-reaching implications for our nation's social fabric, economy, and political landscape.

Baby boomers are often termed the wealthiest generation in history, and their financial success can be attributed to several key factors.

Baby boomers are transferring wealth while they are still alive, often called 'living inheritances'. This affects both the property market and the broader economy.

A significant portion of the wealth transfer is expected to flow into the housing market, fuelling further growth and potentially creating a two-tiered system where those with inheritance support have a clear advantage.

Women are set to inherit a significant portion of the wealth transfer, due to two key factors: they tend to live longer than men and they tend to take charge of managing finances after their parents pass away.

The great wealth transfer in Australia represents a transformative phase in societal structure, economic dynamics, and familial relationships.

We are currently witnessing what could be described as the greatest wealth transfer in modern history.

As the baby boomer generation begins to age, a massive amount of wealth is being transferred to the subsequent generations.

Over the next decade, this generation, who rode a wave of economic prosperity for decades, is forecast to pass on a staggering inheritance estimated at $4.9 trillion by 2034.

This shift isn't just a transfer of assets; it symbolizes a profound transformation in generational wealth and societal norms.

Approximately $2.3 trillion is projected to be inherited by the children of baby boomers, while $1 trillion will make its way to the grandchildren, and a significant $1.7 trillion is slated for various charities.

This redistribution will have far-reaching implications for our nation's social fabric, economy, and even political landscape, but its impact will be far from uniform.

Characteristics of the Boomer Wealth

Baby boomers, born between 1946 and 1964, are often termed the wealthiest generation in history.

Their financial success can be attributed to several key factors:

Homeownership and mortgage freedom: A significant portion of boomers own their homes outright, with 50% having no mortgage, providing them with substantial equity and financial stability.
Superannuation and Education: Boomers were among the first to benefit broadly from superannuation schemes, coupled with access to affordable or even free higher education, which has compounded their ability to accumulate wealth.
Asset Accumulation: Over their working lives, boomers have not only saved but also invested, benefiting from the long-term growth in property and stock markets.

Trends in living inheritances

There's a growing trend among baby boomers to transfer wealth while they are still alive, often called 'living inheritances.'

I call it giving with the “warm hand” now rather than a “cold hand” later.

This approach allows parents to witness the benefits their financial support brings to their children and grandchildren, but this affects both the property market and the broader economy.

A property market bonanza, but not for everyone

A significant portion of this wealth transfer is expected to flow into the housing market.

This cash injection will undoubtedly fuel further growth in the property market, particularly in major cities where affordability is already a major concern.

For young Australians yearning for homeownership, this trend could be a double-edged sword.

While some may receive a leg-up from inheritance, for others, the competition for increasingly expensive properties will become even fiercer.

The phenomenon of the "Bank of Mum and Dad" – where parents financially assist their children with deposits – is already a major factor in the market.

In 2023 alone, parents contributed an estimated $2.7 billion to help their children enter the real estate market, effectively making it one of Australia's largest lenders.

This great Wealth Transfer will likely only further solidify the affordability crisis, potentially creating a two-tiered system where those with inheritance support have a clear advantage.

Women: the unexpected heirs

Interestingly, research suggests women are set to inherit a significant portion – around 65% – of this wealth transfer.

This can be attributed to two key factors.

Firstly, women tend to live longer than men, statistically increasing their likelihood of inheriting from their spouse.

Secondly, studies indicate that in many families, the eldest daughter often takes charge of managing finances after the parents pass away.

This trend could lead to a shift in investment styles, with a focus on security and stability over high-risk growth strategies.

While ASX data currently shows women investing more heavily in term deposits compared to men, research also suggests that as their wealth increases, their risk tolerance may adjust.

High net-worth women and those inheriting substantial sums may become more comfortable with diversified portfolios that include growth assets like property to maximise their returns.

The widening gap: wealth inequality and its consequences

The Great Wealth Transfer has the potential to exacerbate existing wealth inequality in Australia.

While some individuals will see their lives transformed by inheritances, for example, many will receive a house unencumbered by a mortgage, however, others will be left behind.

This disparity could lead to a deeper social divide, with younger generations facing an uphill battle in terms of financial security and social mobility.

The dream of homeownership, already a distant prospect for many, could become even more elusive.

The rising cost of living, coupled with stagnant wages and the increasing dominance of the "Bank of Mum and Dad," could create a system where only those with inherited wealth can realistically aspire to own a home.

This, in turn, could have a ripple effect on a broader societal level, potentially impacting social cohesion and fueling resentment between generations.

Tax2

The death tax debate: a tempting solution?

With such a vast sum of money changing hands, the question of inheritance taxes naturally arises.

Australia, unlike many OECD countries, does not currently have a death tax.

However, the potential revenue generated from such a levy might be enticing for governments grappling with growing expenses related to an aging population and the need for social and affordable housing initiatives.

While death taxes can seem like a quick fix for budget deficits, their effectiveness is often debated.

Many OECD countries with inheritance taxes have high thresholds, meaning only a small percentage of estates are actually taxed.

Additionally, complex legal structures can be employed to minimize inheritance tax liability, raising questions about fairness and effectiveness.

The introduction of a death tax in Australia would require careful consideration, balancing the need for revenue with the potential for disincentivising wealth creation and innovation.

Beyond the money: navigating family dynamics

The transfer of wealth can be a complex and emotionally charged issue, particularly within families.

Blended families, estranged relationships, and unclear wishes can all lead to will disputes and legal battles.

According to some reports, as many as 74% of will challenges are successful, highlighting the importance of proper estate planning.

A well-drafted Will that clearly outlines your wishes and minimises ambiguity can help to avoid costly and emotionally draining legal battles down the line.

But estate planning is different for everyone and consists of much more than having a Will.

Ken Raiss and the team at Metropole Wealth Advisory specialise in estate planning to ensure you set things up correctly to maximise the chance of your assets ending up in the hands of those you want them to.

Click here now and have a chat with the team at Metropole Wealth Advisory who help you protect your assets, pass on your wealth and save tax with tailored strategic wealth advice

You see…despite all the positive aspects of this wealth transfer, there are significant challenges and potential downsides that need addressing:

Financial Abuse and Inheritance Impatience: There is an increasing incidence of financial abuse and pressure from some heirs eager to accelerate their inheritance—issues that require careful societal and legal consideration.
Advice for Wealth Distributors: Financial advisors stress the importance of ensuring one's financial stability before transferring significant wealth, advocating for a balance between generosity and financial prudence.

Some concluding thoughts

This monumental shift in wealth represents more than just financial transactions; it marks a transformative phase in societal structure, economic dynamics, and familial relationships.

As Australia navigates this great wealth transfer, it will be essential to manage it with foresight and responsibility, ensuring it benefits the broader society without deepening existing inequalities.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.