Q+A: The great wealth transfer: what wealthy families get wrong
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What is the main topic discussed in this episode?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer.
What is the significance of the intergenerational wealth transfer in Australia?
Australia is in the middle of one of the biggest intergenerational wealth transfers in history, with trillions of dollars expected to pass from older Australians to their children and grandchildren over the coming decades. So, what are the biggest mistakes families make when transferring wealth, and what actually works well?
What common mistakes do families make during wealth transfer?
Kajal Prasad is Head of Family Advisory at LGT Wealth Management, which is a great supporter of this podcast. Kajal, welcome to Fear and Greed Q&A.
Thank you for having me, Sean.
So when people, a family gets together and starts thinking about wealth transfer, do they have any idea?
Why is governance more important than tax in succession planning?
I think they like to think they do, and they do have the beginnings of an idea as to where they want to end up eventually.
How do family values influence wealth transfer decisions?
But what they fail to realize is that generational wealth is a multidisciplinary, long-term thinking approach that has a number of different elements associated with it, both technical and non-technical. So the aspects around succession planning as a term and intergenerational wealth transfer as a term, they're generally well understood. But what it takes to actually decide what those things are made up of and then implement them is actually quite an involved process that requires lots of different heads and lots of different pieces of advice.
Okay, so we're not just talking about tax here, are we? Like it's much, much bigger than that. So give us a bit of a feel for that.
Yeah, sure. So at the outset, I'd say tax is a component of succession planning in the long term, but it is definitely not the main consideration that families should be thinking about taxing.
What challenges arise from generational differences in wealth management?
So what we see in Australia is that private structures have evolved over time. They've been sort of restricted by legislation at the time, policy updates, et cetera. So we're stuck with a bunch of trusts and companies in a group structure. And we have something like the federal budget announcements, and it causes everyone to think, hang on a minute, how does this affect us? So What we like to do is make sure that structures in particular that have a tax lens to them at the time that these structures are implemented. Actually, we step out of that and look a lot broader and think about, well, what is the purpose of what we've built up? All of these triangles and squares that accountants love drawing on a page.
How can families effectively communicate about wealth and governance?
What do they mean? How do they represent what the family's created, but also where they want to go in the future? And so that conversation where we start to talk about intergenerational wealth transfer and this transition of trillions over the next 10 to 15 years, that's when we start to think about, well, this is not just a tax planning exercise. Tax is a natural consequence, but also an attributor to the entire process. But this is much more about the family than it is about anything else.
Which begs the question, is it more than financial then?
It is definitely more than financial. In fact, a good succession planning project starts with the family and has zero quantitative factors associated with it. So we think about things like what is the purpose of the family before the purpose of its wealth? What are the goals of the family, the non-financial emotionally driven goals? What are they trying to achieve long term? What are their values? What are their desired behaviours? What type of story do they want to leave, not to the rest of the world, but to their future children, grandchildren, great-grandchildren? Those are the beginnings of an intergenerational wealth transfer project that start off with nothing to do with finances, tax or even the underlying investments.
Okay. I wonder how often is a generation totally out of sync with another generation? And that might be financial, but it might be some of those things you're talking about, the purpose of the family wealth.
What are the essential components of a successful succession planning process?
I mean, how do you overcome those sorts of things?
Yeah, sure. So quite often is the answer to the question.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:06–0:13
2
What is the significance of the intergenerational wealth transfer in Australia?
0:13–0:32
3
What common mistakes do families make during wealth transfer?
0:32–0:53
4
Why is governance more important than tax in succession planning?
0:53–1:01
5
How do family values influence wealth transfer decisions?
1:01–1:56
6
What challenges arise from generational differences in wealth management?
1:56–2:39
7
How can families effectively communicate about wealth and governance?
2:39–4:09
8
What are the essential components of a successful succession planning process?
4:09–11:13