FAMILY MATTERS IN THE GREAT WEALTH TRANSFER

At kitchen tables and in boardrooms across the country, Australian families are starting to solve a multi-trillion-dollar puzzle: how to pass on wealth to the next generation.

As the country’s Baby Boomers begin to enjoy retirement and many step out of the day-to-day operations of their businesses, they have time to consider the legacies they want to leave and how to help their children and grandchildren thrive after they have passed.

Australian women look set to inherit a significant chunk of the nation’s wealth and will shoulder a big responsibility in managing it for future generations. A March 2024 report by JBWere projected that women will become managers of 65 percent of the $5 trillion that is set to change hands in coming years.

This trend is one part of the phenomenon known as the “oldest daughter effect,” or the tendency for daughters to take a leadership and decision-making role within families.

Former JBWere Australia chief executive Maria Lykouras says oldest daughters often take on caring responsibilities as parents age, and parents in turn rely on them to help preserve and manage their wealth.

“They want that legacy to be managed in a way similar to how they thought about it and for the purposes that were important to them,” she says.

“They see the eldest daughter as the trusted person in the family that will continue that legacy and will take care of the broader family finances for everyone else.”

No matter who wealth is being passed onto, it’s important for all families to prepare for this moment. If you’ve ever read an Agatha Christie murder mystery or watched the siblings of fictional media mogul Logan Roy battle over his legacy in Succession, you know the level of drama that can emerge through the inheritance process.

It can crystallise family values, but if done carelessly can cause undue confusion, anger and hurt for loved ones.

Here are three essential rules experts say will help smooth the transition of wealth while making sure the next generation is properly prepared for the responsibilities and opportunities that lie ahead.

Get in early

Wealth managers agree that the single biggest mistake they see families make is leaving it too late to have detailed conversations about how the wealth transition will work for them.

“The last thing that you want is for you to pass away and then the money gets into the hands of the children, but the children either don’t know what the money was, they don’t know where it is, or there are multiple children and they are all vying for it,” Lykouras says.

KPMG’s global leader of family business, Robyn Langsford, said she has seen families where adult children are in their 40s and 50s yet their parents have still not communicated with them about how wealth will be distributed when they pass.

“If you are part of a pool of siblings in that age group and you don’t have transparency about where the ultimate ownership is going to end up, that can lead to a lot of anxiety and tension in the sibling group,” she says.

Managing partner at Integro Private Wealth, Justin Gilmour, spends significant time speaking to both the parents and children well ahead of a transition of assets to clarify the priorities of both groups.

“What I think happens a lot of the time is that there are assumptions made, and those assumptions are incorrect,” he says.
“There are not open and frank discussions early enough… That breeds resentment.”

Explain your reasoning

In many family groups, not everyone will be receiving an equal slice of the family wealth.

Advisors see families factoring in a range of issues when dividing assets, including the independent wealth of adult children and their involvement in family businesses.

The key, however, is explaining the reasoning behind the division ahead of time.

“Where it is going to be unequal, that person needs to be proactive in communicating that fact and also the reasons they have come to that decision,” Langsford says.
“The worst thing you can have is some family member feeling like their father or mother loved them less … but actually [the decision] could be due to something completely different.”

“One child might have sacrificed a lot more to further the family’s wealth, for example.”

Now is also the time to discuss family values and how the next generation will manage the assets in line with these.

“Most importantly, have conversations around: What is the purpose of the family’s wealth? Do they want to give money to charity? What do they want to do with the business?” Lykouras says.

Formalise it

It’s also important to think about the formal structures around your plan.

Grant Thornton’s national head of family business consulting, Kirsten Taylor-Martin, says too often families develop a blueprint for how the younger generation will take control of assets, but the wills and estate plans of older parents do not allow for this in practice.

“What you find is that so many families don’t actually make sure all their legal documentation makes that happen,” Taylor-Martin says.
“The estate plan has to be a crucial step in your succession planning process to make sure your vision comes to life.”

It’s also possible to link a formal document like a family constitution, which is not legally binding but sets out a plan for how decisions will be made and what will happen to the family business if there is one.

In some families, writing constitution documents has helped clarify the path forward.

“What it has done is ended all of those assumptions. It basically preserves family relationships.”