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Aussie Baby Boomers Set to Pass Down Trillions in Great Wealth Transfer

Australia is on the cusp of experiencing what experts are calling the "great wealth transfer". That is to say, baby boomers, after decades of accumulating wealth, are poised to hand down trillions of dollars in assets to younger generations over the next two decades.

According to a report from the Productivity Commission, the total value of wealth transfers in Australia, including both inheritances and inter vivos gifts, reached just over $120 billion in 2018. This figure, equivalent to about 6.5 percent of gross national income, while substantial, is notably lower than comparable rates in several European countries.

"We're witnessing a significant moment in Australia's economic history”, says David Kaplan, Co-founder at Willed, an online platform for end-of-life planning. “The scale of this wealth transfer is unprecedented and will have far-reaching implications for both individuals and the broader economy."

The Commission's report highlights that between 2002 and 2018, the total value of wealth transfers in Australia amounted to approximately $1.5 trillion. Inheritances consistently make up the lion's share of these transfers. In 2018, about $107 billion (90 percent) of total wealth transfers were inheritances, compared with less than $14 billion for gifts.

Interestingly, the distribution of wealth transfers is highly skewed. While there were a few very large transfers, most were significantly smaller than the average. The average reported value of an inheritance was $125,000 in 2018-19, with a median value of $45,000. For gifts, the average value was $8,000, with a median of just $1,000.

"These figures underscore the importance of robust estate planning for all Australians, not just the wealthy", Kaplan notes. "Even modest inheritances can have a significant impact on beneficiaries' lives, and it's crucial to ensure these transfers occur as intended."

The age profile of recipients also varies between inheritances and gifts. Inheritance recipients were typically middle-aged or older, with a median age just over 50. In contrast, gift recipients were much younger, most commonly in their early twenties.

The report also reveals a marked increase in the real value of intergenerational transfers. Bequests from older Australians to younger generations, typically their children, rose from about $24 billion in 2002 to $52 billion in 2018. This increase was primarily driven by rises in per-person wealth. Similarly, the real value of intergenerational gifts from parents to children grew from about $4 billion in 2001-02 to $12 billion in 2018-19, fueled by both more frequent and higher-value gifting.

However, the Productivity Commission notes that a lack of high-quality data hampers accurate estimation of wealth transfers. For instance, only 44 percent of people in the Household, Income and Labour Dynamics in Australia (HILDA) survey reported receiving an inheritance after the death of their second parent, suggesting significant under-reporting, particularly of smaller inheritances.

As Australia navigates this era of significant wealth transfer, it's clear that careful planning and management will be crucial. Whether dealing with large inheritances or modest bequests, understanding the landscape of wealth transfer can help both givers and recipients make informed decisions about their financial futures.

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