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Navigating Property as part of Intergenerational Wealth Transfer: A Guide for Givers and Receive

Passing down property is a thoughtful way to leave a legacy and a big part of Intergenerational Wealth Transfer in Australia but both benefactors and inheritors must be prepared for the financial, legal, and emotional complexities involved. Here’s what you should know whether you’re planning to gift property or expect to inherit one as part of Intergenerational Wealth Transfer.

For Givers: Planning to Make the Process Smoother

Capital Gains Tax (CGT) Considerations

If a property is part of Intergenerational Wealth Transfer planning, knowing how CGT applies is essential. For a primary residence, CGT would not apply if your beneficiaries sold the property within two years of your passing. However, for investment properties, CGT will be calculated based on the property’s value increase, and planning ahead can help manage the tax burden for your heirs.

Establish Clear Plans and Communicate

Discuss your intentions with beneficiaries early on to avoid future conflict. You might consider structuring the inheritance through a trust or other estate planning tools to protect the property from disputes or external risks, such as divorce settlements.

Inheritance

For Receivers: What to Expect When You Inherit Property

Primary Residence vs. Investment Property

If you inherit a family home, CGT may be avoided if the property is sold within two years. But for investment properties, the rules differ: CGT is based on the original purchase value if bought after 1985, and any rent received during the interim is taxable.

For Example: Managing CGT on a Primary Residence

Let’s say a parent’s home is valued at $800,000 when they pass away. You and your siblings inherit the property, but it takes two years to prepare for sale. By the time the sale goes through, the house is valued at $900,000. If no one lived in the property during this time, a $100,000 capital gain will be subject to CGT. However, if one of the siblings moved in and made it their primary residence, CGT would not apply.

What Happens with Multiple Beneficiaries?

If you inherit property alongside other family members, agreements must be reached. Common solutions include one party buying out the others, setting up a private payment plan, or, if no agreement can be made, selling the property and splitting the proceeds.

Managing a Property with a Mortgage

If the inherited property has an existing mortgage, ensure you and any co-beneficiaries can handle the payments. Otherwise, selling the property may be the best option, especially if financial situations vary among beneficiaries.

Emotional Considerations for Both Sides

The sentimental attachment to a family home can make the process emotionally challenging. For the givers, it’s important to recognise that grief and financial decisions often mix when a loved one passes, and having clear plans can ease that burden. For the receivers, navigating these decisions can be difficult when emotions are high, especially when multiple beneficiaries are involved.

Puzzle Piece

Tips for a Smooth Property Transfer for Intergenerational Wealth Transfer

  1. Comprehensive Estate Planning
    Ensure the estate plan is thorough and legally sound to avoid issues when transferring property. Regular updates are critical, especially if family dynamics or property holdings change.
  2. Open Conversations Early
    Encourage honest discussions about intentions for the property. For givers, sharing your wishes can prevent future disputes. For receivers, understanding these intentions can help manage expectations and reduce potential conflicts.
  3. Be Financially Independent of Inheritance
    It’s smart for receivers to have a solid financial plan that doesn’t rely on inheritance. This way, you’re better positioned to manage the property or decide to sell without being financially strained.

As financial advisers, it is our responsibility to guide our clients through this important journey, providing the tools and strategies necessary to make informed decisions, minimise tax liabilities, and foster strong financial foundations for their loved ones.

For guidance on how to plan your Intergenerational Wealth Transfer, including bonds, contact Elliot Watson Financial Planning at 02 4038 1623 or complete our contact form.

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness regarding your objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the author’s express written consent.
Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

Article by Vikas Modgil* – Senior Financial Adviser

Vikas Modgil

Elliot Watson

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

Navigating Intergenerational Wealth Transfer
1. Navigating Intergenerational Wealth Transfer: A Guide for Australian Families
2. Investment Bonds for Intergenerational Wealth Transfer: A Flexible and Tax-Efficient Solution
3. Navigating Share portfolio as part of Intergenerational Wealth Transfer
4. Navigating Property as part of Intergenerational Wealth Transfer: A Guide for Givers and Receive
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