A new study suggests that the transfer of wealth between generations is becoming less expected
The transfer of family wealth from generation to generation has been a thing for centuries and how to do it efficiently is a key component of estate planning.
It’s how some of the greatest companies in the world have been built as family riches provided a springboard for creation and growth. It’s how many people have bought their own home, sent their kids to college, or begun their investment portfolio.
But are the opinions of both older and younger generations beginning to change how we consider wealth and the concept of inheritance?
With the Boomers generation set to fuel a huge transfer of wealth, it’s an interesting time to suggest that, increasingly, individuals will spend the wealth that they have created rather than pass it down the family line.
However, this is the finding of an academic study in Australia which looked at opinions across generations and found that older people are keen to spend big in their retirement years, leaving a smaller legacy for their children.
Perhaps surprisingly, younger people appear OK with that, completing the cross-generational view that no one owes anyone anything. Although this may leave many without the retirement backup plan they are relying on.
Taxing the transfer
The University of South Australia study wanted to gauge opinion on inheritance tax.
Like Canada, Australia does have a specific tax on the transfer of wealth upon someone’s death, instead ensuring that a deceased person’s tax account is settled before any transfer takes place. Inheritance tax was abolished there 40 years ago, but some are calling for its reinstatement due to lower tax revenues.
The study found that resistance to inheritance tax may have declined.
"There's nothing more certain than death and taxes. But while people generally assume the combination is notoriously unpopular, our research suggests otherwise," said Dr Veronica Coram from the university’s Australian Alliance for Social Enterprise. "We talked to young adults and senior Australians and two thirds of them thought Australia should consider reintroducing taxes on estates worth more than $3m (CAD$2.8m), while only one in ten were definitely opposed.”
This view may be driven by the likelihood that those receiving these large inheritances may themselves be well off.
Dr Coram says that inheritance tax would increase tax revenues while also helping to address wealth inequality.
"Historically, inheritance taxes have been considered 'political suicide'. But perhaps their time has come, ironically due to a growing individualism and associated decline in the assumption that family members should provide for one another," Dr Coram added.
