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Great expectations – Early inheritance in the age of the great wealth transfer

Feb 58 min read

Updated: Feb 11


Now vs later?


MYMAVINS recent research for Australian Seniors, the Inheritance & Retirement Report 2024, reveals a growing trend toward providing an early inheritance ‘with warm hands’. With increasing economic pressures across generations and the age of the “great wealth transfer” upon us, the stakes are high. In fact, the Productivity Commission estimates that trillions of dollars will change hands across generations by 2050.


While 4 in 5 Australians aged 50 and above with children or grandchildren intend to leave an inheritance after they pass, nearly seven in ten have already provided, or are considering providing, significant financial assistance during their lifetime.


Nevertheless, many are concerned about both preserving a meaningful financial legacy and ensuring they have sufficient funds for their own retirement. Given these challenges, the question remains: what drives this desire to offer support so early?

 

Drivers for wanting to provide an early inheritance


There are several interrelated drivers for this growing trend.


Great expectations – While most feel their parents should be able to enjoy the fruits of their labour in retirement, they still may be banking on a little help to eventuate from the 'bank of mum and dad'. This is evident from the finding that nearly 2 in 3 senior parents think their children or grandchildren expect to get an inheritance.


We also see a rising tension among generations driven by perceptions that many Baby Boomers got a ‘dream run’ compared to their offspring. Over the past few decades, the house-price-to-income ratio has roughly doubled for many parts of Australia (even greater in major capital cities), reflecting a significant decline in overall housing affordability compared to the 1980s. Tertiary education was often free, childcare cheaper, job security greater, as was wage growth. This is potentially stoking expectations that financial assistance should be provided. Furthermore, around 4 in 5 report they are open to discussing inheritances, suggesting a growing comfort level with these conversations compared to previous generations, who may have viewed inheritance discussions as uncomfortable or even taboo.


Help is needed now - Times are tough for younger generations of Australians and nearly 9 in 10 senior parents who plan to provide an inheritance for their children believe it's important to do so to ensure their financial security. They want to help the next generation get into the property market and support their growing family needs such as education or just keeping on top of the day-to-day cost of living. Coupled with this, close to 7 in 10 feel a strong sense of responsibility to continue to provide for their children’s future. Given current economic pressures the need to help now (rather than ‘then’) is tangible.


This early inheritance can often be the make or break for their children being able to enter the property market. This immediate need is frustrated by facing uncertainty when the help will come through – no one wants to plan around anticipating when both parents will pass away (especially given people are now living longer). The ‘bank of mum and dad’ has become increasingly important for the next generations to keep up and get ahead financially.


Sense of control – Another important factor is that organising an early inheritance can help alleviate concerns about ensuring inheritance wishes are fulfilled. Bringing forward the transfer of wealth increases the ability to ensure it is distributed and used according to personal preferences - and it may also help avert family disputes. Adopting a planned approach, rather than leaving “whatever is left”, fosters a stronger sense of maintaining control - a fundamental psychological need. As a result, there is a growing demand for transparency and proactive financial planning.


The gift of giving – Of course another important decision driver is the desire to give with ‘warm hands’. Parents want to be able to experience the joy of giving and take pride in seeing the impact their bequests are making. This is both empowering, emotionally gratifying and reinforces self-identity of a successful life (and launching the next generation into one). Why wait if you can give now?


Challenges to navigate


Of course, providing early inheritance comes with many of its own challenges.


Affordability - Almost 1 in 3 senior parents are worried that the inheritance they can afford to provide will be insubstantial – nearly twice as many feeling this way than in 2018. Apart from some parents just not having as much as they would like to give, many others face uncertainties as to how much money they will need themselves to see out the rest of their lives. The need to prioritise their own retirement needs, uncertainty about the adequacy of retirement funds and concerns about potential future financial emergencies are rife concerns. These create a precarious balancing act between giving family a financial boost while not running out of retirement money themselves.


Only close to 2 in 5 are not concerned at all when it comes to balancing building an inheritance and ensuring meeting their own financial needs. Less than 1 in 2 have considered the cost of retirement homes or assisted living they may need in their inheritance plans (there goes that property equity). Over 2 in 5 senior pre-retirees think they haven’t saved enough money yet for retirement and over 1 in 4 are still unsure. Less than 1 in 2 retirees currently believe they have enough money to last the rest of their retirement with a further 1 in 4 unsure.


Personal sacrifice – It has been said that “love is a willingness to sacrifice’ and there is no doubt that this will be required from many of those with ambitions to provide early inheritance. At least 4 in 5 senior parents planning to leave an inheritance have or expect to make financial adjustments to accommodate their inheritance plans. Over 1 in 3 pre-retirees planning to leave an inheritance are continuing to work in hopes of building a bigger inheritance. For those already fully retired, close to 2 in 5 are spending retirement savings conservatively to build a larger inheritance pool. Nearly 1 in 5 are considering downsizing to free up funds for their children. Many are sacrificing by saving more and spending less which directly impacts their experienced quality of life.


Family matters - Close to 1 in 5 of those leaving an inheritance have concerns about possible family arguments over their inheritance, and many may underestimate this risk. After all, ‘where there's a will there's a relative’. Perhaps even more troubling is when there is no will or clear plan communicated to family members. This is the last thing anybody wants and often requires deft communication, negotiations and estate planning to maintain family harmony. Of course, there are also troubling issues associated with mismatched expectations, undue pressure and outright demands from family members leading to increased rates of elder manipulation and abuse.


The expected unexpected – Many parents can find themselves effectively operating ‘on call’ financial lifelines for their family. While some life events are more predictable than others (e.g. buying a home and putting kids through school), parents often feel the most pressing needs to help their children financially arising out of ‘unexpected’ crises. This may be events such as marriage breakdown, redundancy, emerging market pressures or developing health issues. While these are hard to plan for, they tend to carry emotional gravitas that are hard to ignore. These somewhat inevitable ‘expected unexpected’ events can throw carefully laid retirement preparedness calculations into disarray.


The logistics of giving – Personal experience moderating countless focus groups face to face with pre-retirees and retirees offers a commonly observed paradox. When asking people how important it is to be able to provide an inheritance to their family, they invariably answer it is among their top priorities. However, when you dig deeper and ask them to explicate just how exactly they plan to achieve this – there is typically a pregnant pause. Most look thoughtful then offer something vague like ‘There will be something left in property’ or ‘I really want to be able to help out now but not sure how much I can afford to give’.


Providing inheritance and financial support begs key financial planning questions that are often complex to navigate. How will they be disbursed? When and where will the resources be drawn from? What role will property, cash and super play? How much will super savings become a planned vehicle for bequests? Is a family trust worthwhile? What are the tax implications? What are the implications for government entitlements? How can assurances be provided inheritance will be spent wisely and that it will not rob those receiving it of their own motivation and agency?

 

Closing thoughts


MYMAVINS’s research highlights a growing trend among older Australians to give an early inheritance with “warm hands.” Economic conditions are driving many to want to assist children and grandchildren sooner rather than later. This also offers parents greater control and the joy of witnessing their bequests in action.


However, it creates tension around balancing personal needs and the desire for a meaningful legacy. Many are working longer, spending conservatively, or even downsizing to afford such generosity. At the same time, they must navigate potential family disputes, tax implications, government entitlements, and changing expectations about when and how inheritances should be distributed. Despite these challenges, the shift toward proactive estate planning and open conversations about wealth transfer signals an evolving attitude to early inheritance.


We would like to leave you with a Dickensian quote from Great Expectations, which may ring true to those in hope of giving or receiving an inheritance.


“I must be taken as I have been made. The success is not mine, the failure is not mine, but the two together make me.” Charles Dickens. Great Expectations


The ability to provide a financial legacy to our family taps deep into our sense of self-identity. It is a crucial plot point in the happy ending to the narrative of our lives. It also potentially becomes a defining moment in shaping the life trajectory of those that may receive one. Neither all our successes nor the failures are entirely ours to claim. A person’s identity emerges from the mixture of both their successes and failings shaped by forces both within and beyond their control - yet both together form the individual. This only emphasises the need to wrest control of what we can.


Most Australians, no matter their affluence or financial acumen, fundamentally desire to leave a financial legacy to their loved ones and retain a sense of control in this process. Those lucky enough to be on the receiving end are likewise faced with big decisions navigating this life milestone. Both often require some form of professional support to get this right. This is a critical life moment that matters, with financial services providers having a clear opportunity to help and make a real difference.


Part 2 of this blog will explore where the money will likely flow, how the government is pushing back on the use of super as a vehicle for inheritance, and how the financial services industry can better help both the givers and receivers of the greatest wealth transfer in Australian history.

 

References

• Wealth Transfers and their Economic Effects – Research Paper (Productivity Commission 2021) https://www.pc.gov.au/research/completed/wealth-transfers/wealth-transfers.pdf

• Reserve Bank of Australia – Historical House Prices https://www.rba.gov.au/publications/rdp/2019/2019-01/full.html

• PropTrack Home Price Index https://www.proptrack.com.au/home-price-index/

• Australian Bureau of Statistics – Wage Price Index (Historical) https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia

• Australian Bureau of Statistics – Family services: Childcare arrangements



Author


Tai Rotem is a consulting partner at MYMAVINS with several decades experience in financial consumer, public health, social and behavioural change research.


Reach out to him at Tai@mymavins.com.au


 
 
 

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