5 important ideas to help your children effectively manage their inheritance

Category: Australia & News

A report published by the Productivity Commission, and reported by the Australian Financial Review confirmed that, by 2050, an estimated $224 billion of inherited wealth will be passed between generations each year.

The report also confirmed the bulk of this transfer of wealth would consist of share portfolios, residential property, and pension funds. 

Leaving a substantial amount of wealth to your children can clearly help set them up for life financially and give them valuable peace of mind and security. 

However, you should also be aware of the challenges that receiving a potentially large sum of money and other assets can pose.

Estate planning can be a complex subject, so discover some straightforward ideas to help you give your children the guidance they need to have the best chance of managing your legacy, their inheritance, effectively. 

1. Ensure you have detailed estate plans in place

Understandably, thinking about your death can be difficult. 

That probably explains why, according to research carried out by Finder, 60% of Australians haven’t made a will.

So, a vital step in the process of ensuring your children are able to effectively manage the assets they eventually inherit from you is to ensure your affairs are in order and you have a robust estate plan in place. 

You’ll probably have clear plans about how you want your wealth to be distributed and managed after your death, so sorting all the necessary documentation should be a high priority. 

Be aware that your plan should include separate wills for each financial jurisdiction if you have previously lived in the UK and still have assets there, especially if you now intend to spend the rest of your life in Australia. In these circumstances, you may be faced with an extra layer of complexity that needs to be borne in mind when you’re making plans to pass these assets on to your children.

If your children are currently very young, the choices you make for who you want to be the executor of your will, and who you wish to act as guardians are highly important. 

You should review your arrangements regularly, so they remain relevant and fit for purpose.

For example, it’s likely that how you feel about your children inheriting big sums of money when they are still young may change by the time they’ve left university and started work.

2. Have conversations with your children about financial issues

As you’ve already read, shying away from talk of the financial effect your death could have on your loved ones is understandable. 

Death is never an easy subject to talk about, especially with your family, so you may want to shield them from that with the best of intentions. 

You may also not want to make your children aware of your wealth, for fear of how they will react. Additionally, you may have issues regarding the distribution of your estate, particularly if you’ve previously divorced.

But preparing your children for the responsibilities that will come with managing their inheritance is in their best interests, and yours.

Knowing what’s going on could help them feel far more comfortable, while you’ll gain the valuable peace of mind that comes from them being prepared for the challenges and potential life changes they will face.

You don’t have to go into granular detail, but if you want your children to handle and retain your wealth responsibly for future generations, effective conversations are important. 

3. Gradually make them aware of the scope and value of your assets

Once you’ve broken the ice and started the process of speaking to them about their inheritance, the next step will be to ensure that it becomes an ongoing process. 

Clearly, you will know your children better than anyone, so you’ll have the best idea how and when to have these discussions.

For example, if you own a business, you may want to involve them in business-related issues as soon as you’re comfortable that they will understand and value them. 

This could be particularly important if your intention is for them to run the business themselves at some stage.

To do this, you might look to share age-appropriate information about your assets and how inheriting them could affect your children moving forward. It’s also an ideal opportunity to share your own values, the aspirations you have for your heirs, and how you may wish for them to utilise these assets when you’re no longer there to guide them. 

4. As your children get older, guide them towards financial self-reliance

One of your fears may be that knowing about the details of their inheritance may encourage your children to relax and assume a rosy future without having to work too hard themselves. 

One way to mitigate this potential outcome is to ensure they have a good grounding in basic financial management.

An understanding of simple concepts such as saving money, budgeting, retirement planning, and investments will help teach them important lessons such as the value of money, and will stand them in good stead as they move into adulthood and start on their own life journey. 

You’ll likely want to try and strike a balance between them being aware that their inheritance may well keep them comfortable and free from financial worries in the future, while encouraging them to become self-reliant and mapping out their own independent career path. 

5. Consider using trusts to manage how and when your children receive assets

You could well be concerned about the possibility of your children being overwhelmed by inheriting a substantial amount of wealth at a young age.

To alleviate this fear, you can put milestones in place over a set period to grant them a limited amount of control over their inheritance on a phased basis rather than all at once.

One effective way of doing this is by setting up a trust, or series of them. It will then be down to your appointed trustees to follow the instructions you set out in the trust deed, and release assets to your chosen beneficiaries at certain times, such as specific ages or at life events – marriage, leaving university, and so on. 

In this regard, it’s clearly important to make sure your chosen trustees are people you trust and who know both you, and your children.

Get in touch

If you have any queries regarding your estate planning, please get in touch with us. 

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.