Legacy planning continues to plague older Australians

Overwhelmed by investment options ahead of an expected $4.9 trillion intergenerational wealth transfer, less than a quarter of Australians over 50 have a plan in place on how to leave behind an inheritance, according to research. 

A new survey of 2,000 Australian adults by Generation Life reveals just 23 per cent of over-50s have a plan for how they will leave a financial legacy. The number drops further to 14 per cent for the wider population. 

Some $224 billion each year in inheritance is expected to be passed between generations by 2050, but it seems much of this could be lost during transfer, the firm noted. 

“The research really demonstrates that people aren’t prepared to pass on that wealth, which is really interesting because they’ve accumulated this massive amount of wealth, but what about how it gets handed over to the next generation? Is it tax effective? Will the beneficiaries be satisfied with what they’re getting? Have they got the appropriate structures in place?” said Grant Hackett, chief executive of Generation Life. 

Per Generation Life’s Reimagining Legacy report, around 70 per cent of affluent Australians define legacy as passing on memories, values and lessons.

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Over half (57 per cent) view it as a financial bequest to help build the foundations for the financial success of those around them.

In keeping with this, 63 per cent of Australians’ children are expecting to be the recipients of their legacy while around 21 per cent want to pass on their legacy to their grandchildren as well. 

Unfortunately, just 15 per cent of Australians with under $1 million in assets and 18 per cent with more than $1 million in assets have a plan in place. 

“Legacy means different things to different people, depending on their stage of life and level of assets,” observed Heath Hebenton, financial adviser at Finextra Wealth.

“We approach these conversations right from the first meeting with the client. It’s part of our fact-find documents, the client hates filling out forms, but we ask how motivated they are to actually leave a legacy, even goes down as far as leaving a charitable legacy.” 

The adviser said that he is “not surprised” by the report’s findings, which include a heavy reliance on wills (49 per cent) and superannuation (34 per cent) to pass on a legacy over tools like investment bonds. 

“I don’t think this is unique to New South Wales, but approximately 50 per cent of people in NSW don’t have a valid estate plan which is more than just a will,” Hebenton added. 

According to Generation Life, a national knowledge gap exists on how to most effectively transfer wealth, as wills can create complexities if not drafted properly while superannuation is a tax-ineffective wealth transfer tool when passing wealth onto non-dependants, as this isn’t its intended purpose. 

It’s an area that Hackett expects to see more legislative change moving forward.

“We know people try and use superannuation as a vehicle for estate planning, which is not what it is built for. I think that’s an area where we could see more legislative change [with] that definition of super that Treasurer Chalmers has spent a lot of time defining over the last 12 months, and continues to define,” he said.

“For us, about 50 per cent of our inflows are actually coming for estate planning purposes.”

The role of advisers

Generation Life’s Reimagining Legacy report reveals that saving for a happy retirement is Australia’s top financial goal (38 per cent). However, a knowledge gap amongst older Australians means they aren’t using investment solutions that could help fund a dignified retirement. 

Just 10 per cent of adult Australians are currently using a financial adviser, despite some 77 per cent having specific wealth goals. 

It notes that financial advisers are well-placed to offer tremendous value to Australians’ legacy journey by arming them with the knowledge and the right investment solutions to ensure their wealth is transferred to the right people at the right time.

“Our research shows that people are overwhelmed by investment options so choose to take no action,” Hackett said.

“With the support of a financial adviser, you can build, protect, leave and preserve the legacy that’s right for you, whether you want to give your child a financial headstart, bypass a generation, solve complex family structures and alleviate the funeral burden on your family when you pass away.”

Advisers can also help adult children in assessing the tax and estate planning impact of wealth transfers, given the majority (80 per cent) of such transfers is expected to be to adult children over 50, according to Grattan Institute.

This is why building intergenerational relationships with clients is crucial, Finextra Wealth’s Hebenton explains.

“Whether it’s in the media or just in the industry, everyone talks about this upcoming intergenerational wealth transfer, which is fantastic, but that’s why it’s important to have a relationship with that next generation,” he said.

“Otherwise, you’ve got wealthy clients, and they pass away, and if you don’t know who the children are, you won’t see that money again. We very much like to have a relationship with them [and] it doesn’t mean they have to be a fee-paying client.” 

Last month, research by Praemium found 39 per cent of high-net-worth investors said inheritance and estate planning were unmet advice needs for them, as well as retirement planning and intergenerational advice.