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Chapter 1: What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk. With Aviva Insurance. Did you know that we're about to have the biggest ever transfer of wealth in history in this country? A report out in April said that while retired people make up 16% of the population, they hold 27% of the net wealth in the country. Well, here to explain how this could impact you is Managing Director of Rockwell Finance, Robert Whelan.
Good morning, Robert. Good morning, Clare. The great wealth transfer, you call it.
Yeah, absolutely, yeah.
Chapter 2: What is the great wealth transfer and why should we care?
So older people have loads of money in the attic.
Yeah, news. That's news, isn't it? So, yeah, like basically Irish household wealth today is about 1.2 trillion. And about two thirds of that, a little over 800 billion is actually held in residential property wealth.
Chapter 3: How significant is the wealth held by retirees in Ireland?
And the calculation for that is the house price minus debt equals net wealth. So if you think about it logically, if you're a first time buyer, your net, your household wealth in terms of that piece is quite small. Whereas if you're in your 60s and your house is worth half a million quid and you have no mortgage, you have a half a million quid of wealth tied up in it.
And what we're about to see over the next 25 years is a transfer. You've seen some estimates, but conservatively in today's money, at least 500 billion euro, maybe 600 billion euro will transfer from one generation to the next. And it's never happened before. And I suppose the challenge is for people as to how do they manage it.
And how do they manage it?
They talk about it. I think no one likes talking about money, particularly in Ireland, right? So the first question is, and I hear this all the time from clients, I'm sitting on this effective cash pile in terms of the house or whatever. I've got kids who can't get on a property ladder. I've got grandkids who can't get on a property ladder. And if I could only.
So it's a question of like, do I gift today? And if I gift today, how does that affect me? So I'm 65. I've retired. I got a lump sum from my pension. I know I'm going to be OK because I've got other little bits and bobs. How much of that lump sum can I afford to gift today so that I can help my kids out without impacting my own lifestyle, my own standard of living and retirement?
But it starts with having a conversation, not only firstly with yourself as to what your own desires are and your own needs, and then having a conversation with your kids. Because ultimately what you want to avoid, it's not in the business, it's the King Charles effect, where you're waiting for an inheritance, you're waiting for something to happen and you're 70 and it means nothing to you.
You know what I'm trying to say?
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Chapter 4: What are the implications of wealth transfer for first-time buyers?
Yeah. And see, that's the other thing about this. People are living longer. So, you know, you might see your parents with an asset, but your parents could be hale and healthy well into their 90s. Absolutely. And you could be, you know, tipping 70. And you haven't got your hands on the cash yet.
Waiting for Godot. Yeah, absolutely. And that's the truth. And it's the challenge. This is what I'm saying about having conversations. Like, I'm a big advocate for anything to do with estate planning. Have a conversation with your kids as to what your intentions are. Like, if there is a family home, one kid might say, I'd always wanted to buy that or something like that.
So it's having the conversation, ascertaining exactly what... because most people today would rather see, like let's talk about housing is the number one issue. It is what it is. So everyone wants to help their kid out, but they don't have the cash, but they're sitting on effectively a cash pile. Now, there are solutions available you're looking at.
If you don't have the cash assets, the cash wealth, and in terms of downsizing or lifetime mortgages, that type of thing.
Releasing equity in your home, which can be an expensive option.
It can be, but for some people, it's a question of the trade-off. They might be giving away 20% of their house value today, to give away, as in releasing 20% of the house value today to maybe 65% of the house value when they die. But they may say to the kids, are you happy with that? We can't take it with us. We don't want to leave the area. We don't want to sell our house. You need a house now.
You need a house now. What do you want? And that's what I'm saying. Having that conversation, showing the kids the numbers, getting a financial advisor involved, but sincerely. And everyone then can make an adult decision. And then there's no regrets. And then there's no rows. And then people can plan.
But you also have to be careful with that because you don't want to put your own financial security at risk to help the children out because there's no point in doing that.
It's crazy. I couldn't agree more. Like, listen, the old adage of, you know, you're on the airplane and to say when oxygen levels drop, put your own mask on first before you attend to your kids. Why? Because if you don't, you could be passed out before you put on your kids.
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Chapter 5: How can older generations manage their wealth for younger family members?
So it's the same principle applies. You have to take care of yourself. You have to make sure you're OK. But for most people, there is a gap there. There is capacity. Not for everyone, I understand that. But for most people, there is a gap there. It's the size of the gap, quantifying the gap, and then deciding what you want to do with it.
Of course, there's huge tax implications involved in this as well, right? Remind us about that, about inheritance tax.
Yes. So last year, the government collected just over 850 million in capital acquisitions tax. About 90 percent of that figure came from inheritance. The rest came from gifts. So the difference is money you're giving you're alive, money you're giving you're dead. Right. So in Ireland, we're allowed to receive from our parents up to 400,000 euros tax free.
So if you die and you leave your house, let's say worth 800,000 and you have two kids and you split it 50-50. No tax. No tax. If you die in the house, you've got five kids, right? And each get 160,000, no tax. If you die and you have one kid and they inherit 800,000, they get 400,000 tax free and they pay 33% tax on the 400,000 balance. So it's 120,000 euros.
So they may have to sell that house to pay the bill.
Most people do because they don't have the cash. Yeah, absolutely.
But you can gift three grand a year, can't you?
Yeah, like there are, let's just say, exemptions. And the annual gift exemption is, for me, the least exploited tax loophole in Ireland today because any adult can gift 3,000 euros per year to any other adult. It doesn't have to be relative or anything like that. So we typically see grandparents now gifting to the grandkids and grandparents giving to the kids.
And if you've got a couple, that's 3,000 each. So I can give 3,000, my wife can give 3,000. So that's 6,000 we can give to each of our children per year, tax-free. And absolutely taking advantage of that, if you have, again, the cash to do it.
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