Family Wealth Transfer what you need to know

The Government’s Productivity Commission released a report in recent years that indicates approximately $3.5 trillion [1] in family wealth will transfer from the Greatest Generation (those who lived through the depression and WWII years) and their Baby Boomers heirs to X-Gen and older Millennial children.

Arrangements for wealth transfer between generations will be different for each family, however in my experience there are three matters that both the stewards of family money and those who inherit it need to know to make the most of their wealth windfall and continuing the legacy.

1: The value of financial knowledge and advice

‘Shirtsleeves to shirtsleeves in three generations’ is a known, albeit not-so-positive wealth concept, that references family wealth created by the first generation, maintained by the second and then, consumed by the third.

Unfortunately, these days it appears family wealth is evaporating even sooner as recent research indicates 70% of families now lose their wealth by the second generation, and 90% lose it by the third. [1]

Managing money is a learned skill, and even then, innate complexity and the time-consuming nature of wealth circumstances usually requires professional advice and support.

However, no amount of knowledge will maintain family money if there is little or no sense of financial responsibility or respect for the legacy created by forebears.

Involving yourself in family money management and education, and in turn your children or future beneficiaries, is important for preserving this valuable legacy.

It’s important because more recent generations are often not involved in family money discussions, and as a result they do not fully understand or appreciate the risk and reward decisions made by the preceding generations that created and sustained the family’s wealth.

It’s often this lack of insight and experience that contributes to what can be an unintentional demise of family wealth.

Seeking out and sharing wealth experiences, understanding wealth values and discussing them with your professional advisers, can provide the support necessary for what can be complex financial decision making for managing and preserving family money and helping prepare the next generation of beneficiaries.

2: Wealth preparedness
It’s common for very high earners to have considerable financial commitments. Accidental death, serious illness and debilitating health conditions all too often in the prime of their life can impact them and the family which relies upon that wealth.

While wealth preparedness should include a comprehensive personal risk strategy, but it also involves proactively managing your existing financial matters which often includes an Executive Share Scheme (ESS).

Meeting vesting and tax obligations and riding out volatile company share prices has potential to severely affect your day-to-day cashflow. Should loss of income and share value correspond with paying a significant tax bill, you could experience financial distress, and this can adversely affect your lifestyle and create family wealth impacts.

Contingency planning should include access to emergency funding, pre-planning tax obligations and implementing a balanced investment approach that can alleviate some of the negative financial consequences of having all your financial eggs in your employer’s (ESS).

3: Understanding your wealth beneficiary obligations
As a beneficiary of family wealth, or perhaps one of several, it’s important to understand that families comprise a range of different characters. This can create challenges relating to fairness and actions required to protect family wealth.  As a steward or beneficiary of family wealth will you will need to navigate these issues, and you will likely need advice.

Financially immature or gullible family members, those who may have unstable relationships, gambling problems, substance addiction or who may be unable to independently manage their financial affairs due to disability or because they may be an infant or child under 18 years, must all be considered in context of your best interests and those of the family overall.

Family wealth succession discussions can be emotional, and often the solution is taking an arms length approach. When facilitated by a financial advice professional who is well informed of the circumstances and capable of logically explaining often complex financial strategies and the intended outcomes, sensitive family discussions can be steered to agreed outcomes.

Next steps…

Seek to understand the origins of family money and your responsibilities as a beneficiary and a steward perpetuating the next transfer of family wealth.

Do all you can to protect yourself, your ability to earn via an appropriate personal risk insurance strategy. Commit to getting advice and diligently managing the family money you have inherited in addition to your own substantial earnings and assets.

Make plans for when you’re no longer able to make decisions due to incapacity or your death. These will include writing a Will and establishing an estate plan with appropriate structures for tax efficiencies and safeguarding your wealth which will include instructions for its distribution to beneficiaries according to your wishes.

Never skimp on advice. Qualified financial planning with specialist knowledge in the complex matters is invaluable especially when delivered in collaboration with specialist tax advice, including international tax, and legal counsel.

To learn more about ESS financial management, please contact James Marshall on +61 (0) 7 3007 2080 or email

To learn more about James, visit this link.

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.

Further reading:
Money matters that need to be discussed with your next gen adults

Three questions about money that can get your parents talking