Australians inherited an estimated $150 billion in 2024, an increase of more than 70 per cent in a decade, according to a JBWere report.
According to the report, this number is predicted to grow more rapidly over the coming 20 years to $5.4 trillion.
Passing on wealth within modern families can be complex and emotionally challenging, especially those involving divorce, remarriage and blended families. Without careful planning, it can lead to disputes or even legal challenges.
Legal firms agree that the number of contested wills has been increasing each year, with adult children most likely to take action. One firm estimates more than 60 per cent of claims are brought by adult children and around 20 per cent by partners or ex-partners. Yet, many still do not have wills.
In the latest research available, the Australian Law Reform Commission found that almost 40 per cent of adult Australians did not have a will, although, this figure declined to 7 per cent for those older over 70.
If you pass away without a will in Australia, your estate is distributed according to state and territory laws, and these laws can vary. Typically, your estate goes to the next of kin starting with your spouse or partner, then your children, parents, siblings and so on. If no relatives are found, your estate may go to the government.
So, if you want to decide who inherits your assets having a will is a must.
Meanwhile, for those in a new partnership but have children from a previous marriage, a binding financial agreement can be a useful way of protecting your partner’s interests if something were to happen to you.
It’s important to remember that a will is a legally enforceable contract that details how assets, liabilities and responsibilities will be divided if you separate, divorce or pass away.
Designing your transfer of wealth
Distributing your wealth now or later can depend on the family dynamics, any businesses you may own and whether you have a passion for creating a legacy – donating to a charity, for example. Alternatively, you may prefer to spend it on yourself and your partner to enjoy your later years.
With the housing crisis and rising living costs, more parents are choosing to transfer wealth during their lifetime. This is often by helping with a home deposit, contributing to super or covering education costs.
While doing this can be rewarding, it’s important to seek professional advice to understand any consequences of giving lump sums, particularly those receiving government entitlements, as they could potentially be impacted.
Another alternative is discretionary trust. A discretionary trust, also known as a testamentary trust is commonly used to provide financial security for beneficiaries, such as family members or loved ones. It is used to manage and distribute assets according to specific instructions outlined in the will.
It can be specifically written and incorporated in your will and takes effect when you pass away. It is administered by a trustee, who you would also name in your will. The trustee would take legal control over the trust assets and is responsible for the management and distribution of the assets to the beneficiaries, based on the instructions in the trust.
This strategy could also potentially minimise any tax liabilities. However, there are a lot of things you need to consider when deciding whether or not a discretionary trust is right for you.
You might prefer to establish or contribute to a charitable foundation as a way of building a family legacy. This is a move that allows you to have some say over how your hard-earned wealth is distributed and could involve family members, to allow them to build knowledge and experience in philanthropy.
Most importantly, creating a family legacy relies primarily on the strength of family relationships. Emotions often run high after the loss of a loved ones and some relationships may be strained, so it may be helpful to discuss your intentions with family members and any other beneficiaries. It’s important to be clear about your plans, listen openly and not to shy away from difficult conversations, these can help protect your legacy and your relationships.
Next steps
At its core, wealth transfer is about more than finances – it’s about protecting family harmony and ensuring your legacy reflects your values and wishes. Taking the time to plan, communicate openly with loved ones, and seek professional guidance can make all the difference.
If you’d like financial advice about your affairs, reach out to your trusted Nexia adviser today.