Intergenerational Wealth Transfer in Australia:
A Guide to inheritance planning
In the next two decades, $3.5 trillion in wealth will be passed on from Australians over the age of 60. This will be a seismic shift in the financial lives of millions of Australians.
Whether you’re preparing your estate, or you’ve inherited a large sum, our comprehensive inheritance planning guide will help to prepare you for what’s to come.
What is intergenerational wealth transfer?
Intergenerational wealth transfer is the passing of assets from one generation down to the next. It doesn’t just refer to cash. It includes everything from property, superannuation, cash, businesses, and any other asset that’s handed to the next generation.
This can take the form of an inheritance, or gifts while the asset holder is still alive. These different approaches to transferring wealth have vastly different implications when it comes to taxation and administration.
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Unsure on your next move after receiving an inheritance? Download our comprehensive intergenerational wealth transfer guide.
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How much wealth is actually changing hands in Australia?
According to the Productivity Commission, $3.5 trillion in wealth will be passed on from Australians over the age of 60 over the next two decades. That’s $175 billion each year.
The cause of this stark increase in inheritances is primarily due to increases in per-person wealth. Baby boomers (those born between 1946 and 1964) are Australia’s wealthiest generation, and older Australians are expected to hold an increasingly large proportion of the country’s wealth over time.
Whether you have a large amount of accumulated wealth tied up in cash, a superannuation fund, the family home, or a business, the time is now to begin planning for the wealth transfer.
Key considerations for inheritance planning
Here are some of the major wealth areas you'll need to strategise around for inheritance planning.
Superannuation
Super is the single most valuable asset of many Australians. Properly managing its transfer is vital to effectively passing on wealth and securing your legacy.
Your super is held in trust by a fund trustee. If you have a standard super fund, the trustee is the fund itself. Unless you have a valid Binding Death Benefit Nomination (BDBN) in place, the trustee, not your will, decides who receives the benefit.
Through a self-managed super fund, you may be able to make BDBNs that do not lapse every three years, unlike standard BDBNs. You can use a trust deed to set up a clear succession plan in the event of your death.
Superannuation death benefits can incur tax of up to 32%. Division 296 means even greater obligations for individuals with over $3 million in super. Taking a deliberate approach to your super strategy gives you greater control of how your wealth is passed on.
Start a conversation with an Ord Minnett private wealth adviser today and find out how we can guide you in taking greater control of your superannuation.
Real estate
Property is often the emotional and financial cornerstone of family wealth. Transferring real estate across generations requires careful planning to manage taxes and administrative issues.
Inherited properties are treated favourably compared to some other assets. Typically, no stamp duty is due, and main residences of the deceased may be exempted from Capital Gains Tax (CGT) if they’re sold within two years. Investment properties are not eligible for this exemption, unless they were acquired before 20 September 1985.
However, challenges can still arise when real estate is inherited. A property cannot be easily divided among a group of heirs. Disagreements can arise over sales circumstances and timelines.
A proper estate plan manages these issues. Our private wealth management team will help incorporate main residences, holiday homes, and larger portfolios into your estate plan. This helps ensure the fair and efficient transfer of assets to the next generation.
Family trusts and companies
Private corporate structures and discretionary (family) trusts can be effective for protecting wealth and distributing income to future generations. These entities are separate legal structures, so they aren’t “inherited” in the same way as other parts of a deceased estate.
Control of a family trust can be passed on through trust deeds and constitutions. You might also consider testamentary trusts, created through your will upon your death, which can enable wealth transfer to minors in a tax-effective way.
Whether you’re considering setting up a family trust or want to optimise its structure, start a conversation with an Ord Minnett adviser today. We work with tax and legal experts to help you develop strategies that make the most of these opportunities.
Cash, investment portfolios and other personal assets
You generally do not pay tax on inherited lump sums of cash. Any bank interest a beneficiary earns after receiving the cash will generally be counted towards their taxable income.
CGT on investment portfolios, managed funds, or physical assets generally doesn’t apply when it is inherited. Instead, it applies when it is sold.
The capital gains are calculated on the cost base when the asset was acquired by the deceased, unless the asset was acquired before 20 September 1985. In this case, the cost base is calculated based on the day the deceased died.
If you need to create a plan for passing on these assets, or you want help strategising around a recently-received inheritance, start a conversation with our private wealth management team. We’ll help you understand your best options for moving forward.
Is there an inheritance tax in Australia?
No, there is no inheritance tax in Australia. However, taxes can apply in a range of scenarios when wealth is inherited.
- 01
Capital Gains Tax
Capital Gains Tax (CGT) is a tax paid on profits when an asset is sold or otherwise disposed of. So, if you inherit an asset like shares in a business, and sell it, you will generally need to pay CGT on profits earned. CGT is generally applicable when a sale is completed, rather than at the point of inheritance.
CGT is calculated by adding CGT profits onto your taxable income. It’s paid at your income tax rate. There is a 50% CGT discount on assets held for longer than 12 months, which includes the time it was owned by the deceased.
If you inherit a property that was the main residence of the deceased, and you sell it within two years, you may be eligible for the main residence CGT exemption.
- 02
Superannuation taxes
When someone dies, their super can be paid to a dependant beneficiary (including adult children) or to the trustee of the deceased estate, generally as a lump sum. Certain dependants under superannuation law, usually excluding adult children, can receive it as an income stream.
The tax you pay on an inherited super benefit depends on how much of it is taxable and how much is tax-free, calculated using the proportioning rule. A lump sum paid to a dependant (under superannuation law) is entirely tax-free.
For everyone else, including most adult children, the taxable component is generally taxed at up to 17%. This rises to 32% for any element that hasn't already been taxed. Both figures include the 2% Medicare levy, which generally doesn't apply if the benefit is paid via a deceased estate.
Where a benefit is paid as an income stream, the taxed element is tax-free if either the deceased was 60 or over at death, or the recipient is 60 or over. If both were under 60, the taxed element is taxed at marginal rates, with a 15% tax offset until the recipient turns 60. Different rules apply to any untaxed element.
For balances over $3 million, Division 296 imposes an additional 15% tax on realised super earnings attributable to the balance above the threshold. In the year a member dies, any Division 296 tax owed becomes a liability of the deceased estate, unless they died on or before 30 June 2027.
- 03
Stamp duty
Stamp duty, also known as transfer duty, is a state-level tax that applies when transferring the ownership of property and certain other assets. It can play a significant role when it comes to inheriting wealth.
Inheriting residential or commercial property directly through a deceased estate generally does not attract standard stamp duty. Depending on the state or territory, the transfer may instead be exempt from duty or subject to a small fixed or nominal duty, with separate land title registration fees potentially applying.
However, gifting property to family members while you are still alive generally triggers full stamp duty based on the property's market value, even if no money changes hands. There are various, limited exemptions to this rule, depending on the state or territory you live in.
If family members inherit a property together and one buys out the others' shares, standard stamp duty applies to the share being acquired.
Stamp duty can also apply in different ways when inheriting or gifting business assets and shares. Stamp duty generally doesn’t apply when “inheriting” a trust, because legal ownership doesn’t actually change in the same way it does for other assets.
However, stamp duty may apply when assets are transferred outside of the trust. These rules can vary significantly from state to state.
- 04
Trust taxation
Family trusts are not “inherited” when someone dies, because they are not owned by a single individual in the same way as other assets. They can be a tax-effective option for passing on wealth.
However, taxation can still apply when transferring wealth through a family trust:
Ongoing income: Any ongoing income distributed by the trustee to beneficiaries will generally be taxed at the appropriate marginal tax rate.
Testamentary trusts: You can also create a trust via your will upon your death. This is called a testamentary trust. With a testamentary trust, income originating from the deceased estate is distributed to minors and is taxed at adult rates, rather than penalty rates.
Transferring assets: If a trustee transfers legal ownership of an asset to an individual beneficiary, this is considered a tax event, and may incur CGT and stamp duty.
Giving while you are still alive
According to the Productivity Commission, the average recipient of an inheritance is about 50 years old, close to peak earning capacity, and already established in a home. In short, they are well past the time when an inheritance would make the biggest difference in their lives.
For this reason, an increasing number of Australians are choosing to give wealth to their adult children while they’re alive. This means wealth can be handed over at a time when many young Australians are struggling to get on the housing ladder and dealing with other economic issues. Like an inheritance, simple transfers of assets like cash are generally tax-free.
- Impact on Centrelink entitlements:
Gifting large sums of money or assets can trigger Centrelink "deprivation of assets" rules if you receive or plan to apply for the Age Pension.
- CGT and stamp duty:
Unlike passing assets down through a will, transferring property, shares, or business assets during your lifetime generally immediately triggers full Capital Gains Tax (CGT) and state stamp duty based on market value, even if no money was paid for the assets.
- Personal financial planning:
It’s crucial to ensure that wealth is given in a manner that doesn’t compromise your financial security. Working with a professional financial adviser helps ensure that you can still enjoy the retirement of your dreams while efficiently giving wealth.
Giving wealth during your lifetime can be an excellent use of your assets, but there are some important things to consider before doing it:
Tips for preparing for intergenerational wealth transfer
Here are a few key tips to help you and your family make the most of intergenerational wealth transfers:
You can’t make informed decisions about your wealth if you don’t fully understand it. Work with a professional team to review all your assets, including cash, property, superannuation, shares, and beyond.
Once you understand what you own, create an estate plan to help pass it on. Professional advice will help you navigate all the hurdles when it comes to writing your will and considering options like trusts.
Whether your super sits in a standard fund or you have a self-managed fund, it’s important to properly prepare for its transfer to the next generation.
Involve your beneficiaries in the estate planning process. On average, around 70% of wealth is lost by the second generation of inheritors. Work with your family to ensure you have a future-focused plan for managing wealth when you’re gone.
Get the advice you need to prepare for intergenerational wealth transfer
Intergenerational wealth transfers are a complex and emotional area. Whether you’re trying to secure your legacy for future generations, or uphold the legacy of a loved one, there’s a long list of challenges to face.
A simple will isn’t enough for effectively transferring wealth to future generations. When you start a conversation with a private wealth adviser from Ord Minnett, we’ll help you understand what’s required to create an effective estate plan. With $73.4 billion* in Funds Under Advice, our team is also immensely experienced in helping clients make the most of large windfalls.
Join the more than 2.6 million Australians seeking financial advice every year and ensure you’re properly prepared for this crucial time.
Frequently Asked Questions
How much money will be passed on in the intergenerational wealth transfer?
Over the next two decades, $3.5 trillion in wealth will be passed on from Australians over the age of 60, according to the Productivity Commission.
How does Division 296 affect the intergenerational wealth transfer?
Division 296 imposes an additional 15% tax on realised superannuation earnings for individuals whose Total Superannuation Balance (TSB) is between $3 million and $10 million. For balances over $10 million, further taxation at a rate of 10% applies. These additional tax rates apply only to earnings attributable to the balances above these thresholds.
While Division 296 doesn’t directly impact super death benefits, it does indirectly impact intergenerational wealth transfers in two main ways:
- Estate liabilities: In the financial year a member dies, any unpaid Division 296 tax liability becomes a debt of the deceased estate. This can be particularly impactful if the beneficiary of the super is not also liable for the estate. This liability does not apply if the member dies on or before 30 June 2027.
- Surviving spouses: If a surviving spouse receives a super death benefit as an income stream, it is added to their personal Total Superannuation Balance (TSB). This may push their balance over $3 million, thus incurring Division 296 tax.
Who will inherit the wealth of the baby boomer generation?
According to the Productivity Commission, the average inheritance recipient is 50 years old. This means that as baby boomers enter their twilight years, most of their wealth will be transferred to Generation X and older millennials, born roughly between 1976 and 1995.
What are the tax differences between gifting and inheriting wealth in Australia?
Cash transfers are generally tax-free, whether they are the result of lifetime giving or an inheritance. Asset transfers involving things like real estate, business shares, or managed funds while you are still alive generally immediately trigger Capital Gains Tax, even if they were transferred for nothing in return.
Passing these assets on in a will generally doesn’t trigger CGT until they are sold or disposed of by the beneficiary.
Do you pay Capital Gains Tax (CGT) on inherited property in Australia?
You generally do not pay CGT at the time you inherit a property in Australia. However, CGT will generally apply at the time you sell the property.
The main exception to this is the main residence exemption. If you inherit a property that was the main residence of the deceased, and you sell it within two years of their death, you are generally exempt from paying CGT.
What strategies can you use for passing on a family business in Australia?
Here are some tactics you can use to efficiently pass on a family business in Australia:
- Transfer entity control rather than assets: Passing down control of a family trust or private company through measures like changing directors allows a business to keep operating without triggering a sale event, avoiding immediate CGT and transfer duty.
- Small business concessions: Small business owners may be eligible for a range of CGT exemptions or roll-overs. These can apply if assets are gifted during a lifetime, or in certain inheritance scenarios.
- Family governance and succession plans: Clear constitutions and succession timelines help ensure that businesses are run effectively by more active family members, while non-active heirs also get fair treatment.
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