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Opportunity Next – Generational Wealth Transfer

Succession Planning

Opportunity Next – Generational Wealth Transfer

By , February 19, 2024
wealth transfer

According to the report by Australian Ethical and Coredata released in November 2023, the generational wealth transfer from the baby boomer generation to the younger generation is already well underway. This represents the largest transfer of wealth in history and will have a significant impact on the financial situation of Generations X, Y & Z as they benefit from the intergenerational wealth transfer.

Australia’s generations:

Wealth transfer:

$3.5 trillion in wealth is expected to change hands from baby boomers to a new generation of owners over the next two decades (according to the Productivity Commission 2021 research paper – Wealth transfers and their economic effects).

The Productivity Commission reports a coming wave of wealth transfer, potentially offering younger generations a historic opportunity to improve their financial well-being compared to previous generations. While careful planning is crucial, this unprecedented event could unlock greater financial security and upward mobility for many.

This transfer has already commenced, with many baby boomers looking to share wealth while they are still alive. Approximately half of the wealth transferred has been used immediately – 5% spent on luxury or self-care items, 10% as a deposit for a house and 34% to pay off debt or a mortgage. The remaining 51% remains invested and/or under advice.

Financial advisers and estate lawyers must focus on this changing demographic and be aware of the challenges inter-generational wealth transfer brings.

Business Succession – the great wealth transfer:

In terms of Business Succession and Exit Planning, for those who own businesses, this makes the transfer far more complex. It is relatively easy to transfer investments, shares, cash, and even property assets, but family business assets are by nature complicated, and whilst ownership may be transferred, someone has to run the business (i.e. management succession). These assets are normally far riskier than an investment portfolio or a property asset, and often, the next generation simply doesn’t want to take the asset on due to these factors.

Family businesses also often involve other assets either related to the business – plant and machinery, vehicles or even property and sometimes other assets are used to secure funding for the business (bank mortgage over the residential property).

Taxation implications:

The largest intergenerational wealth transfer also has taxation implications, not just capital gains tax. In many cases, retirement savings like superannuation will be affected, and the transfer will normally have a substantial impact on the personal wealth of the family member receiving the transfer. This may mean changes need to be made to other investment assets, and even estate planning as inherited assets will change the relative wealth inequality between younger generations.

However, for family businesses, ownership transfer is just one piece of the puzzle. These assets are often intertwined with other complexities, such as management succession, unique valuations, and potential family disputes. Understanding and navigating these additional layers is crucial for a successful transition.

Beyond the immediate tax implications, there are also long-term considerations for the wealth transferred through family businesses. These might include changes to the recipient’s tax bracket, potential inheritance taxes, and strategies for preserving and growing the transferred wealth.

How do you transfer wealth to the next generation?

Worldwide, this issue involves tens of trillions in accumulated wealth over the next few decades as boomers move through retirement age and transfer wealth to family members. Early planning is essential to make sure the value tied up in privately owned businesses is not lost in the process. The greater economic impact of the wealth transfer will make a big difference to the next generation.

In terms of business assets, especially privately owned businesses, there are three key messages:

  • Define Your Vision: Begin with the end in mind – start by outlining your goals. Do you plan to retain some assets while divesting others? Is there a specific plan for distributing wealth among family members? And, crucially, how does your family business fit into this picture? Remember, transferring ownership isn’t enough – consider who will manage the business for future success. Is the transfer happening between generations or among multiple adult children?
  • Start early and Plan ( as early as possible ): Don’t wait until the last minute. Most plans need to follow a process, such as our 21-step Business Succession and Exit planning model. This typically takes 18-24 months, or even longer for complex and larger businesses. Explore options like superannuation contributions or testamentary trusts for certain assets. Remember, early planning helps optimize tax efficiency and minimize financial challenges.
  • Seek Expert Guidance: Navigating this intricate process alone can be risky. Partnering with experienced advisors, like Succession Plus, can ensure your assets reach their intended beneficiaries while minimizing legal and tax issues. They can also help you structure your estate and plan for intergenerational wealth transfer, potentially transforming your family’s future.

Most retirees are focused on planning their retirement, but having a shared vision with intergenerational wealth to family members, especially if you have assets worldwide, can be life changing for your family if done well.

Don’t navigate this complex process alone – partner with Succession Plus. We have extensive experience and expertise in guiding business owners through successful succession planning, maximizing the benefits for both you and your heirs. Contact us today for a free consultation and let us help you create a legacy that lasts.

Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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