How to manage the rise of 'early' inheritances

For decades, financial advice around wealth transfers has largely focused on estate planning and the distribution of assets after death. However, a significant shift is underway: the rise of 'early' inheritances.

Increasingly, individuals want to help their children and grandchildren enjoy a happier, more secure life now - not just later. An early inheritance offers a way to provide meaningful support in today's economic climate, either as a lump sum or through several smaller payments over time.

While emotionally rewarding and often financially strategic, this approach also brings a new set of challenges for families and advisers, alike. Managing early inheritances effectively requires careful planning, open communication, and a clear understanding of the risks and opportunities available.

This trend is even more prevalent among high-net-worth individuals. Our recent research has shown that 88% of affluent and high-net-worth Australians intend to transfer wealth, with nearly two in three planning to do so while still alive in order to be able to see their loved ones benefit from their wealth. So how can financial advisers best prepare their clients for wealth transfers, especially those that want to gift their money early?

Is your client ready to give an early inheritance?

Firstly, it's important to make sure your client is in the right position financially. Motivations for providing early inheritances are varied and often deeply personal and many want to help their children or grandchildren progress, whether that's to enter the property market, pay off debts, or cover education costs such as school fees and HECS-HELP loans. Others may wish to support loved ones in starting a business or simply provide financial security when it's most needed.

A common question is whether to gift money directly or cover expenses on their behalf. Providing your loved ones with an early inheritance offers more autonomy, allowing recipients to choose how they use the money. It can also help ensure fair distributions among beneficiaries - especially when the same amount ends up being totally distributed to all parties.

But, before a client jumps into gifting an early inheritance, financial advisers must fully understand their clients' financial situations. Assess whether they can afford to give now and maintain their long-term financial security and ensure clients have taken into account potential unexpected expenses that may arise, such as large medical costs or a sudden change in living arrangements.

It is also necessary to consider a clients' family dynamics to help prevent any personal issues that could result from the distribution of an early inheritance. Being aware of the broader family picture can help manage risks and avoid potential conflicts down the line.

Is your client under pressure to gift early?

An early inheritance is a fantastic gift, but it is important that financial advisers acknowledge the risks of financial "inheritance impatience".

This can occur when one's beneficiary puts pressure on them to release part of their inheritance prior to their death, even when it is not in their best interests to do so. Financial advisers should ensure to verify with their clients that gifting an early inheritance is right for them and there is no undue external pressure to release funds to any member of their family.

If this is the case, advisers should have guidance in place to make sure clients are making the best decisions for themselves.

Understanding the implications of early inheritances

Providing an early inheritance can help ensure assets are divided as intended, giving peace of mind to those concerned about their estate distribution after death. While this approach can clarify intentions, it may also open the door to legal challenges. Under succession laws, beneficiaries who receive an early inheritance may still need to make a claim on the estate after a person passes away, so this risk should be carefully considered.

There are also implications on government entitlements. Although Australia does not have a gift tax, Centrelink assesses significant gifts made within the last five years when determining eligibility for certain payments. To not affect their benefits, individuals should keep within the limits of the rules that only allow $10,000 per year and a total of $30,000 over five years, to be gifted.

Opportunities for financial advisers 

Although an early inheritance comes with its challenges, it presents a valuable opportunity for financial advisers to guide clients through the process - helping them support their families now, while safeguarding their own financial security for the future.

Financial advisers also have the opportunity to support the children of their clients who gain wealth from early inheritances, providing ongoing and supportive financial advice. For many beneficiaries, receiving a large sum of money can be overwhelming. Advisers are well placed to step in, provide structured investment advice, budgeting support and long-term planning for both the giver and receiver.

An early inheritance isn't just about passing on wealth - it's about supporting loved ones now and building financial confidence for the future. By understanding each client's needs and family dynamics, financial advisers can help families manage the complexities of early inheritances and ensure fair, informed decision-making. This strengthens relationships and sets the foundation for long-term success for both clients and their advisers.