Transferring wealth

Remember the halcyon days of the 1960s when New Zealand had one of the highest per capita incomes in the world and topped the OECD quality of life index? Even though we all know now that this came at a big cost to the country, a lot of people still tend to look back and see that decade as New Zealand's golden age.

NZ was isolated, and we were more innocent then. Everything closed at 6 o'clock, nothing was open on the weekends and children played in the street. If one person in your street had a TV, all the neighbours would go down the street to their place to watch it. Fish and chips wrapped in newspaper and sprinkled with vinegar was a staple diet on Friday nights, even if you weren't a Catholic. Life just seemed a whole lot simpler.

Back then transferring wealth from one generation to another wasn't much of an issue, except for a few old well established families. Because of higher taxes and inflation it was harder to build up capital. Take home wages were lower and house prices reflected this.

Because of larger families, any inheritance was split between more children and the amounts of money involved were fairly modest. When parents wanted to help their children, they did it in practical ways through babysitting, helping with the purchase of big-ticket items such as a washing machines or a fridge, and by providing muscle power for jobs like pouring concrete for a new driveway.

Following the economic reforms of the 1980s and the abolition of estate duty, most of that has changed with lower taxes and a stronger economy. More people have been able to create greater wealth through their business, shareholdings or property.

Clients tell me they see their children and grandchildren's lives as a lot more complicated than theirs were. Even putting aside the failure rate of relationships and the potential impact a divorce can have on family capital, they watch with concern as their offspring grapple with repaying student debt after an O.E. in their late 20s, and struggling to scrape together a deposit for a modest house.

They understand why so many of our young people are debating the merits of earning better money overseas, and are seriously weighing up the pros and cons of buying a property here versus planning a long-term future somewhere else.

They see their children putting off having families until later, and facing the prospect of having toddlers in their 40s, and teenagers when they are close to 60. The general conclusion seems to be that their children are so much further behind than they were at the same stage in their lives.

This concern often translates into the way they structure their own financial affairs, and often includes some serious thought about transferring wealth sooner rather than later to help younger members of the family enjoy a better future. The two main areas of assistance are education and coming up with a meaningful deposit for buying a property.

Some families may be in a position to pay all their children's education expenses, but often it's the "carrot & stick" approach. Providing children succeed with their studies their parents will share part of those costs, and once children start working and repaying their student loans, parents will match the repayments.

This assistance halves the size of the loan and the time it takes to repay it. This method is easier on most household budgets and their children learn a valuable lesson - "there is no such thing as a free lunch".

Family trusts have grown in popularity, and increasingly more thought is given to asset protection and estate planning. Forward planning and good advice are keys to doing this well.

When making advances for a property purchase, a trust might advance funds to their children in the form of an "interest free loan" repayable on demand, or because of concerns with future relationships, the trust might create a new trust for their child to receive any future inheritance.

The adviser's role is to try and structure their clients' financial affairs, so that people have greater options and as much flexibility as possible. It's often about striking a balance between enjoying life now, and creating the kind of life our clients want in the future.

It's never too early to get your financial plans on track.

*Jeff Matthews, an authorised financial adviser with Spicers, and is a regular media commentator on wealth and savings. The article is his opinion and should not be used as a form of financial advice.