Planning for pain in an unexpected inheritance

AN INHERITANCE is often a welcome windfall in a time of sadness, but parents who fail to explain their plans to their adult children risk family fights and a financial fall-out.

As average inheritance sizes surge amid Australia’s rising wealth, an unexpected payout can be harmful, and estate planning specialists say it’s wise to talk about them early.

William Buck’s director of wealth advisory, Adrian Frinsdorf, said Australian families were not great communicators about money, and this often left adult children unprepared to deal with a sizeable inheritance.

“For all good intentions, some parents do not want to reveal the full extent of their wealth to their children as they grow up,” he said, adding that many didn’t want to spoil their offspring or breed expectation.

Mr Frinsdorf said when he started advising 23 years ago, a $1 million inheritance was seen as large but today payouts above $3 million were not uncommon – and complex for many adult children. “Family

trusts, business loans and beneficiary entitlements can be hard for any unprepared family member to get their head around,” he said.

Superannuation can cause confusion among surviving family members because there are different tax treatments for different beneficiaries, while

self-managed super funds may need to be wound up.

Australian Unity Trustees wills and estates specialist Anna Hacker said unexpected inheritances could result in social security impacts, and could also affect existing issues – such as bankruptcy – among beneficiaries.

“Additionally, there is nothing like inequality between siblings to create issues in family dynamics, which may already be strained,” she said.

Parents who discussed potential inheritance issues with their children early could minimise future problems including legal battles, Ms Hacker said.

“If potential beneficiaries are aware of what is going to happen, they may not have to deal with those surprises at a time of intense grief,” she said.

Ms Hacker said a growing number of parents were delivering early inheritances through loans rather than gifts, to ensure siblings were treated equally.

“Remember that just because a will appears to be equally distributed, tax and other considerations may in fact create inequality,” she said. For example, an investment property will attract capital gains tax, while a principal place of residence is tax free.

Mr Frinsdorf said he often encouraged family finance forums, where parents could outline their financial status and explain their estate.