In the midst of Australia’s escalating cost-of-living crisis, families are discovering that traditional inheritances (delayed until death), may not go as far as they once did.
As the “great wealth transfer” unfolds across generations of Australians, savvy families are asking: why postpone the benefits of inheritance when gifting now could create lasting impact? The transfer is estimated at a staggering $5.4 trillion over the coming 25 years. For many, the idea of a “living inheritance” – gifting assets during your lifetime rather than waiting until death is becoming more appealing.
But is it the right move?
Why consider a living inheritance?
- Immediate Impact Helping children or grandchildren break into the property market, fund education, or grow a business can be life-changing. You won’t be alone in doing this. The “Bank of mum and dad” is now a major lender in Australia. For many parents, seeing these milestones firsthand is very rewarding.
- Tax Efficiency Transferring superannuation balances during your life can help reduce the sting of death benefit taxes. This can be up to 17.5% (with the Medicare levy) when paid to non-financial dependents, such as adult children.
- Policy Changes Looming Retirees are keeping a close eye on the proposed Division 296 tax changes targeting super balances over $3 million. With the start date pushed to 1 July 2026 and signals the government may pivot away from taxing unrealised capital gains, the landscape is shifting. However, many retirees are still looking to deploy assets earlier rather than later to manage this cap.
The Risks – it’s not just about generosity
Of course, gifting wealth early isn’t without its challenges.
For those on Centrelink, there is a potential trap. If you receive (or plan to apply for) the Age Pension, Centrelink has strict gifting rules. You can generally only gift $10,000 per financial year, capped at $30,000 over a rolling five-year period.
Anything above this is treated as a “deprived asset” for five years. This means Centrelink assesses you as if you still have the money, potentially reducing your pension entitlements even though the cash is gone.
Loss of Control – once assets are transferred, they are largely out of your control. Relationship breakdowns, creditors, or poor financial decisions by your children can erode the benefit.
Family Friction – unequal distribution between children, even for valid reasons, can sow the seeds of long-term family disputes.
Why Structuring Matters
Because of the risks above, simply handing over cash is rarely the best strategy. Structuring matters.
- Loans vs. gifts: In the Family Court, a “gift” is often considered a divisible asset. Instead, consider a formal loan agreement. This ensures the money is treated as a liability in any relationship breakdown, protecting it from being split with an ex-spouse. For larger sums, a Binding Financial Agreement (BFA) may be necessary.
- Family trusts: Options like discretionary family trusts can help protect both giver and receiver.
Testamentary trusts are activated on death and while these remain a powerful tool for tax efficiency and control, that is a subject for another day.
Checklist before gifting
If you are considering a living inheritance, here’s a few things to check first:
- Affordability: Only give what you can truly afford. Once transferred, it’s almost impossible to take back.
- Documentation: Formalise large gifts with agreements to protect against disputes or external claims.
- Super Rules: Ensure you’ve met a condition of release before drawing down funds. While pension-phase withdrawals can be tax-free, re-contribution options are limited.
- Capital Gains Tax: Be careful—transferring ownership of an asset (like a property or shares) may trigger a CGT event for you, so timing is critical.
Thinking Beyond One Generation
There’s a rag to riches saying that says the first generation creates it, the second generation builds on it and the third… well it spends it or blows it up!
Whether or not you believe that, it’s a reminder to think strategically. A gifting plan designed with multiple generations in mind, potentially including philanthropic ambitions, can help preserve family wealth and close the gap for those who come after.
Final Thought
Living inheritances are not a one-size-fits-all solution. For those who want to see their wealth make a difference in real time, it can be a powerful way to create a legacy that’s both immediate and enduring.
However, the intersection of tax, Centrelink, and family law means you need careful planning and professional advice before transfers start occurring. It is a complex area and may need not only personal financial advice, but also legal and tax advice. Please reach out if we can help.
Phone: 03 8610 6396
Email: info@keepwp.com.au
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from a financial planner who can consider if the strategies and products are right for you.
