Generational Transfer of Wealth



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Regardless of culture, race, nationality or creed, the concept of family is important to a tribe or a society. This concept of family is ingrained in our DNA and the saying, “blood is thicker than water”, bears testimony to this fact. When asking a leader in any particular field, it is often the love and devotion that they have for their family, that is their driving force and motivation. The overriding aim being to create and give the next generation, a better life than what they received. Onward and upward with each generation.

Well, that is the theory, and as well all know, the business of life is lived in real time and the real world, and not in theory. Whether we like it or not, within the family unit, wealth is always transferred from one generation to the next. It may be large in quantity, or small, but there is always a transfer. What is often not highlighted is that this transfer can be either negative or positive wealth. It is impossible for this sum to be neutral. Take some time and think about it.

In this day and age, with the tremendous advances in healthcare and living standards, many people are living longer than they planned, and longer than what their retirement savings are able to fund. Because of the strong family bond that exists in our culture, children are obligated to take care of these parents and provide financial assistance and support. This is effectively a negative transfer of wealth.

Very little can be done about what has happened in the past, it is “water under the bridge” and current families need to deal with and manage the consequences. But, what can families do going forward that can prevent, or at best inhibit this negative transfer of wealth.

  1. Retirement:
    Many folk retired far too early and did not bank on longevity coming into play to the extent that it has. Retirement as a lifestyle decision must only be taken after much consideration, detailed financial analysis, and doing the sums from a realistic perspective.
  2. Inflation:
    R1m today, will buy you a lot less in 15 to 20 time. Make sure that the time effects of inflation are properly taken into account and calculated in your retirement plan.
  3. Costs:
    Staying alive longer comes at a cost. Healthcare costs may not be adequately planned or catered for. Being healthier means that one is also able to be more active and do things such as travel. But this comes at a cost and adds to the bottom line.
  4. Geo/Political Risk:
    South Africa makes up 0,4% of the worlds GDP. What this means is that if the whole of “Earth” was one business, South Africa’s share of this business would be a miserly 0,4%. Make sure that your investment portfolio is not to heavily concentrated in this small corner of the “Earth” business.
  5. Taxation:
    Today there are many forms of taxation, both direct and indirect. Taking proper advice to ensure that one’s tax affairs are efficiently structured and that one has paid the taxes due is of extreme importance. Adverse tax leakage can also have extreme negative effects to wealth creation and the transition to retirement. Proper and efficient planning can make a material difference.
  6. Cash is not King:
    Traditional planning strategies always advocated increasing portfolio exposure to cash the closer one got to retirement date. This was done at the expense of exposure to growth asset classes such as equities. Over the long term the net after tax return of cash will not beat inflation, let alone equities.
  7. Professional Advice
    When one is sick, one goes to a qualified doctor and takes the medicine that the doctor prescribes. Yet, for something as important as ensuring that one is not a burden or negative drag on the next generation, many people believe a DIY strategy is OK. Alternatively, one goes to a salesman who just flogs a financial product. Very seldom is one prepared to pay professional fees for professional advice. Why?


In conclusion, what is the best way for families to ensure that negative wealth is not transferred from one generation to the next? Or worse still, that hard earned and accumulated wealth is squandered and wasted in the transition from one generation to the next. Families need to be open and transparent with each other. Families need to together, develop and agree on what is affordable, optimal and best. It is seldom that a family can do this alone. Yet, unfortunately, it is also seldom that appropriate professional advice is sought after.

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