Intergenerational Wealth Transfer - solving for complexity with discretion


Paul Ashworth, Managing Partner
Anne-Marie Tassoni, Partner
Campbell Cooke, Senior Analyst

Posted 01 November 19

You'd like to know that their road will be easier than yours.

Complexity in wealth and family arrangements often necessitates incorporating discretion as part of your Intergenerational Wealth Transfer Framework.

Managing for tomorrow, the good fortune built over time

The increase in family wealth in Australia over the last 15 years has been monumental. The growth in the number of families in Australia who would be considered high net worth and ultra-high net worth is leading for the Asia-Pacific region.

Increases in family wealth have been accompanied by a corresponding complexity in structures, operational issues and forward strategy setting. Common is a vast 'patchwork' of trusts, companies and superannuation funds inter-layed with a complexity in beneficial interests, control provisions, asset protection and taxation implications. From a succession and estate planning perspective, this requires a vastly different approach to the intergenerational transfer of wealth.

Discretion and quiet guidance to executors, trustees, ongoing directors and appointors is vital in where family and wealth complexity exists. The effective use of Statement of Wishes by the current controllers of family wealth is valuable as a discrete, private and nuanced means to effectively implement strategic plans for the succession of family wealth

Succession and Intergenerational Wealth Transfer

Succession and estate planning is a very personal undertaking that does not follow a simple recipe. Increases in wealth, ever-changing tax policy and changes in family dynamics occasioned by multiple marriages and blended families have all led to more complicated financial circumstances. In turn, estate contests are on the rise as family members fight for their 'slice of the pie', both privately and in very public, sometimes salacious.

Irrespective of the size of an estate, the layers of consideration and risk issues to mitigate when preparing a Will can be complex.

Most Australians (mistakenly) think having a Will is enough. They step out in their Will exactly how they would like their wealth to be divided and usually give it no further thought expecting the outcomes they anticipated when writing their Will will occur exactly as stated when they are gone. Often the structure of a Will contains elements that, when practically applied, are not capable of operating effectively.

What may seem obvious bears restating: all directions and views written into a Will are binding (and publicly on the record) – what you say, goes. What if there is a change in tax law, or a family member’s personal circumstances change? If the only instructions an executor and then trustee and appointor can rely upon are the ‘hard-wired’ directions in a Will, significantly different or adverse outcomes could result.

So how do you ensure that your key objectives are both put in place and capable of being overseen with sufficient flexibility to empower your trustees with their own decision making in light of changing circumstances, law and the economic environment, whilst also providing a lasting, protected legacy? A considered and thoughtful Statement of Wishes document could be the answer, providing the crucial balance between hard-wired instructions in the Will and guidance, framework, principles and policies in your Statement of Wishes.

Statement of Wishes

Your Statement of Wishes is in effect a guiding statement to those responsible for administering your estate and any ongoing structures (such as trusts and group companies) as to your personal views, belief and expectations, and accompanying guidelines and policies. Importantly, it is a confidential document, separate from the Will and from public eyes. As an increasing amount of family wealth is structured to be in trusts and companies, succession of wealth from one generation to the next is not effected through direct transfer by Will direction, but by changing the control provisions of the trusts and companies that already exist (and may well be designed to exist for many generations going forward).

Whilst not legally binding, a Statement of Wishes can be considered morally binding on those people in whom you have bestowed responsibility to manage your affairs after you are gone.

Unlike your Will, which is placed on public record in view of any and all, your Statement of Wishes need only be made available to those who have a role in carrying out the instructions of your Will; typically executors, trustees, appointors, guardians and directors. You can therefore communicate in a more fulsome and purposeful manner without the invasion of the public’s prying eyes. It provides discretion and more fulsome guidance.

Alarmingly, many do not realise that some directions placed in a Will can be entirely ineffectual. For example, did you know a Will has no strict legal enforceability over assets held within a company, trust or superannuation? This is because those assets are not legally yours; but that is not to say that you cannot express how you expect they be controlled, managed and protected.

More purposeful and insightful than a Will

Your Statement of Wishes is particularly powerful in addressing complex family or wealth situations where trust or company structures are involved. Whether they be existing structures (discretionary family trusts or companies) or new structures created from the estate (testamentary trusts and charitable trusts), your Statement of Wishes is valuable means by which you can direct how the appointed controllers of these vehicles are to manage assets, for whom and what advice should be sought.

One of the best tools you can provide the controllers of your estate and various entities is a clear road-map, and a Statement of Wishes is just that – they are your directions, guidance and policies, in your words, that capture the essence of all that is important to you. Without such guidance, your executors and trustees will be left to presuppose your intentions and make these decisions which may not ultimately align with your sentiments and expectations. Better to ‘lead the horse to water’ than let them stray.

Planning and structuring for the subtleties and discretion of complex wealth and family

A long-term legacy that is truly intergenerational takes a wealth strategy that focuses on continuity from ambitious beginnings to well beyond the success of the corner office or business success. Planning one's legacy is all about understanding subtleties when passing on the baton. Incorporating discrete guidance is important

Like the families we serve, we are one ourselves. As strategists and intergenerational thinkers, continuity means everything to our clients and us. This parallel is not a coincidence, as a suite of generations ourselves, we can genuinely understand the ages and stages of life.

Please contact us to engage with our partners to develop an intergenerational wealth transmission strategy and estate plan that untangles complexity and achieves clarity of vision in his’s journey.

If you'd like to learn more about how intergenerational wealth transfer planning could help your circumstances, please reach out. We'd be delighted to hear from you. Please contact us on +613 9655 5000.