Lately there has been a marked uptick in commentators predicting an impending mass transfer of wealth to the next generation within families.
My experience suggests that such predictions should be regarded warily.
13 years ago I undertook a qualification in business exit planning, designed to equip consultants with the skills needed to help business owners prepare for their inevitable exit, either by external sale or transition to the next generation of their families.
The text for this course was a book titled “The $10 Trillion Opportunity” (Peter Christman) which was based on the premise that an impending tsunami of businesses was about to be transferred. At the same time, ABS statistics suggested that Australian baby boomers were about to reach 65 years of age at the rate of 5,000 per week from 2011 onwards.
The book was written in 2005. It’s now 2025. The tsunami never arrived, but we’re now seeing the same predictions.
What happened was that owners held on to their businesses. Whilst some advisers may have noticed more activity in exit planning work, there was no mass transition. In fact, many of the owners who turned 65 after 2011 are still actively involved in their businesses today.
In the same way, the anticipated transfer of wealth as business owners cashed in hasn’t occurred as expected.
As Professor Julius Sumner Miller may have put it…why is it so? In my experience there are some trends which have emerged.
Inadequate preparation of the incumbent generation
Many baby boomers have not adequately planned for the transition of their wealth. This lack of preparation is often due to the complexities involved in estate planning, which can be both time-consuming and emotionally challenging. Additionally, there is a tendency among the incumbent generation to defer discussions regarding estate planning and wealth transfer, often due to the discomfort associated with contemplating their mortality. This avoidance leads to a lack of structured plans and legal mechanisms necessary to facilitate a smooth transfer of wealth.
The tenacity of business founders to hold onto their “baby” was also underestimated. For many founders, their business is closely tied to their feeling of purpose and self worth. Often, the harder the rising generation push to move on the founders, the tighter the founders’ grip becomes. The status quo becomes a comfort zone which founders find difficult to escape from, particularly when the founders have no other meaningful pursuits to fall back on.
Financial constraints of the incumbent generation
The financial landscape has changed considerably over the past few decades, with rising costs of living, healthcare, and unexpected economic downturns caused by world events, most notably the GFC and global pandemic.
Consequently, many boomers find themselves relying on their accumulated wealth to sustain their retirement, leading to less available for transfer. This financial dependency has been exacerbated by increasing life expectancy, meaning that the incumbent generation needs to ensure their resources last longer than previously anticipated.
Transition can also be derailed by the failure of incumbents to build wealth outside of the businesses they founded. This can be compounded by the typically conservative family business mindset that profits should be reinvested rather than distributed, either by way of dividends or by building sufficient superannuation funds for the incumbents to retain their pre-transition lifestyles.
Unpreparedness of the rising generation
The rising generation, often referred to as Millennials and Gen Z, has also played a role in the delayed wealth transfer. Many members of this generation are not adequately prepared to manage and sustain large inheritances.
This unpreparedness is partly due to a lack of financial literacy and education about wealth management. Additionally, the values and expectations of younger generations differ from those of their predecessors. There is often a focus on immediate financial stability, career progression, and personal fulfillment, rather than long-term wealth planning and inheritance.
Families can also fail to adequately prepare the next generation for the responsibilities of business leadership, further delaying transition.
Family complexity
Families of today often look different than those from the incumbent generation. Modern families can be more complex, with blended families, divorces, and remarriages adding layers of complexity to estate planning and wealth distribution. These issues can foster uncertainty and discourage the transfer of wealth whilst incumbents are still living; it can be easier to leave it to the next generation to decide amongst themselves after the incumbents are gone.
Taxation
The taxation laws in Australia are punitive for those attempting to transfer assets or wealth during their lifetimes. Capital gains tax, which applies specifically to assets acquired after September 1985, discourages intra-family wealth transfers and leaving assets via an estate plan usually results in a lower taxation impost, as well as potentially delaying the taxing point for many years.
Philanthropy
There is a growing trend of philanthropy among the baby boomer generation. Many wealthy individuals are choosing to allocate a significant portion of their assets to charitable causes rather than passing it down to their heirs. This philanthropic mindset is in part driven by a desire to create a legacy and make a positive impact on society.
Some of these factors can be influenced by dedicated and meticulous transition planning. Without it, expectations of a wealth transfer tsunami might again be premature.
Robert Powell FCA GAICD is the founder and managing director of Family Boards Pty Limited, a specialist consultancy helping family companies achieve best practice in succession planning, wealth transition, board governance and risk management. He is a Chair of the business leader peer support group Leadership Think Tank Australia, an accredited specialist adviser member of the Family Business Association (AU), a Graduate of the Australian Institute of Company Directors, and a Fellow of Chartered Accountants Australia & New Zealand.