One of the biggest transfers of wealth in human history is upon us, but research shows far too few of the baby boomer generation – and their families – are prepared for what’s coming.
In what’s been widely dubbed the ‘great wealth transfer’, around $100 trillion in assets globally will be moved from the estates of deceased baby boomers (those born between 1946 and 1964) to their heirs over the next two decades.
It’s expected to be the single biggest intergenerational wealth transfer in history, with a Productivity Commission report estimating around $3.5 trillion in assets will be transferred in Australia alone by 2050.
That will mostly be in the form of residential property and unspent superannuation funds. Currently, inherited assets total around $120 billion per year in Australia but that figure is expected to balloon to more than $500 billion per year over the next 25 years.
Are we ready?
According to most research, no. Especially when it relates to those with the most money.
Swiss investment giant UBS found that globally, around 40 per cent of high net-worth individuals (those with more than US$1 million in assets) do not have a legal will; 49 per cent do not know where all their wealth is located, and half couldn’t tell you the total value of their assets.
And that is a problem, as the wealth transfer appears to be happening faster in Australia than elsewhere in the world.
Earlier this year, a report compiled by share broker AUSIEX found that baby boomers are leaving the workforce at an accelerated rate in Australia, as many reassessed their lives after the pandemic.
“Within five years, all baby boomers will be eligible for retirement and the baby boomer bubble will have all but left the workforce by 2028,” the report says.
“It doesn’t stop there. In 2027, the first of the baby boomers will reach their statistical age of death (81 years for men and 85 years for women).
“Baby boomer superannuation balances will start to deflate out of the system through retirement consumption and then through disbursement via the inheritance process.”
Why is it so important?
It’s your money, and you should decide where it goes. Put simply, passing away without a legal will means your children and/or grandchildren may not receive everything you want them to. It gives control of your estate to the person you want to have it.
Without a legal will, your family will have to apply for what’s known as Grant of Letters of Administration with the Supreme Court. It’s a costly and time-consuming process that may not actually deliver the result you intended.
Generally speaking, if you die without a will and you have a legal spouse, your estate will be left to that person. If there were children from the relationship, some of the estate will go to them.
If someone dies without a partner or children, their assets will be distributed between family members in the following order: parents, siblings, grandparents, aunts and uncles, followed by cousins.
So, if you have friends or anyone else not related to you that you’d like to leave something to, you need to set up a legal will.
Do you have a legal will in place? Did you receive financial advice before making it? Let us know in the comments section below.