The person sitting in front of you is someone’s daughter, mother or sister.
These people are your clients too. Yes, we know that your statement of advice will be provided to the client sitting in front of you. But once you widen the scope of “who is my client?” to include “…and close family members,” wonderful opportunities open up. These opportunities focus on arbitraging the different age, tax, super and Centrelink profiles within the family to maximise overall family “better-offness”.
Intergenerational financial planning is the name of the game.
Examples abound. They include:
- grandma and grandpa lending their adult daughter $100,000 to pay off her home loan. Grandma and grandpa give up $1,500 of after tax income, but their daughter saves $5,000 of non-deductible interest. The family save $3,500 cash a year, with the younger generation getting the benefit. Plus grandma and grandpa are happier because they know they are helping their daughter and their grandchildren; or
- early inheritances. Grandma will probably live to be about 90. Her children will be in their sixties when she dies. It’s too late: the peak cost years have passed. An early inheritance when her children are in their forties and struggling with school fees and home loans makes a lot more sense.
We tend to presume the assistance aspect will flow down the generations, from the oldies to the youngies. But this is often not the case. Migrant families in particular often support parents and parents in law. Here ideas include:
- accommodating impecunious parents in a geared rental property;
- genuinely employing parents in a family business, on a part time basis;
- superannuating employee parents; and
- providing parents with company cars.
Some strategies focus on super. One client example saw a cashed-up son pass $100,000 to his 64 year-old father to invest, via non-concessional contributions to a managed super fund in tax free pension mode.
Another idea sees parents gifting assets to uncontrolled family trusts at about age 60, setting the stage for an old age pension. The old age pension for a couple can be up to about $30,000 a year, usually tax free, and that’s the same as getting a state provided life annuity with a capital value of about $700,000.
Inter-generational financial planning ideas seem obvious to clients who come from cultures without a strong state-based social welfare system. Middle-eastern, Asian and Mediterranean clients get it straight away (in fact they expect it straight away). Anglo-Celtic clients often baulk a bit, but if you persist you can get break throughs.
Inter-generational financial planning lengthens the time horizons on investments and increases the emphasis on family trust-based investment structures. Estate planning becomes more focussed. All of this creates more, important and interesting, work for the adviser.
And there is always more you can do for your client(s).