Wealth Transfer with Intention
In Reno, Nevada, 93-year-old Rupert Murdoch is in court, attempting to modify a trust to grant his son Lachlan control over his media empire. The Murdoch family tree is big and complex with his current wife, four ex-wives and six children to consider.
This real-life succession drama highlights two things. Families are inherently complex, and each one is different. Succession planning is important regardless of the level of wealth involved.
Many of our clients face uncertainties and challenges regarding wealth transfer and succession planning. Financial planners can play an active role in guiding and supporting effective wealth transitions.
So, if wealth transfer is inevitable, how do people decide whether this should occur now when we are in control, or later when we are not?
“Around two in five prefer to share their wealth as a living legacy – nearly twice as many as the one in five who prefer to just share their wealth as a bequest. The remaining two in five have an equal preference, meaning that four in five want to leave some kind of living financial legacy.” Source: Fidelity Oct 2023.
Picture this scenario: A retired couple, mid-seventies, successful and self-funded are contemplating a $1 million gift to help their 40-year-old son reduce debt and grow his business. They think they can comfortably afford it without changing their lifestyle.
The son is not asking for the funds and does not need the money in the traditional sense. He is hard working and financially responsible. With a young family and a large mortgage, the transfer would make a significant improvement to his family’s long-term financial position.
The couple meet with their financial planner and ask:
“I think we can afford this, but should we?”
Every case is unique, with its own context and nuances. The financial planner returns the question:
“Does this action align with your long-term goals?”
A clear articulation of these goals can bring clarity to the decision-making process. For couples, this step is the key to ensuring both partners are on the same page.
The couple reach an agreement on expressing their goals:
Primary goal: Ensure a regular, reliable, and sustainable income that allows us to live comfortably, with a reasonable buffer for life’s unforeseen major expenses.
Secondary goal: Support the ongoing success and development of our children and their families, helping them achieve their potential in a way that is fair and promotes family unity.
Once we understand what we’re trying to achieve, we can work through the details of making a cash gift:
- Is it really affordable?
- What are the implications for future income?
- How are other family members impacted?
- What are the tax and social security implications?
- Is the recipient at risk of losing the money due to creditors or relationship issues?
- How can we document these arrangements in a way that protects the interests of all parties?
Financial planning is at its best when it addresses the complexities of families—not just the finances.
Lachlan Harvey CFP®
Authorised Representative (No 227293)
