The Ethics of Inheritance: navigating Australia’s Generational Wealth Transfer

Australia stands on the cusp of a momentous wealth transfer, with baby boomers, the nation’s wealthiest generation, poised to bequeath an estimated $3.5 trillion to their descendants in the coming decades, largely via inheritance. This unprecedented shift raises profound moral questions about wealth distribution, individual autonomy, and societal fairness.

This “great wealth transfer” is expected to reshape the economic landscape, potentially exacerbating existing inequalities. Though, this new era of inherited wealth – even modest sums – prompts ethical considerations that warrant careful examination.

The Clash of Ethics: Individual Rights vs. Societal Good

Patrick Stokes, an associate professor of beliefs at Deakin University, specializes in the ethical dimensions of inherited wealth. He frames the inheritance debate as a conflict between individual rights and what benefits society as a whole citing that “it’s my money. I earned it, I can spend it how I want — so I can give it to my kids, right? I can give it to whoever I want. But the problem is that if a lot of those transactions happen… you end up with big inequalities [in society],”

Stokes continues by explaining that “You end up with situations where wealth clusters or you have huge disparities of wealth, and you also have the issue of inherited wealth perpetuating itself rather than everyone starting from a level playing field.” It’s a tightrope walk between personal financial freedom and the collective good,emphasizing the need for ongoing dialog and compromise – ultimately,a matter of politics. Understanding this balance is key to navigating the complex ethical landscape of inheritance. A recent Oxfam report highlights that the wealthiest 1% own more than double the wealth of 6.9 billion peopel. (Oxfam, 2023.)

Australia’s Inheritance Tax Debate

Australia is among the few developed nations without a tax on inherited wealth, having abolished death duties in 1979. one of the primary concerns, according to Stokes, is that inheritance “reproduces the same wealth structures from one generation to another.” This perpetuation of wealth concentrations can hinder social mobility and create a less equitable society.

Anglicare Australia, in a report released in 2024, has advocated for a tax on inheritance to “provide a fairer system of wealth distribution, preventing undue concentrations of wealth within a limited segment of society,” preventing a meaningful divide between asset-rich households and wage-reliant individuals.

Stokes encapsulates the paradox: “We can always say, ‘Well, I earned this money so I can spend it how I want.’ But then you’re giving it to people who, by definition, didn’t earn it — because you’re not really earning somebody’s money just by outliving them.”

ethical Responsibilities: Recipient and donor

Both the giver and receiver share ethical duties to ensure that inherited wealth contributes positively to society. Consider the potential pitfalls and restrictions, as Stokes cautions “There’s a problem that’s sometiems referred to as the ‘dead hand of the past’: how do you ensure that the ideas that people had in the past don’t end up completely constricting what people can do in the present?” He illustrates this with the example of restrictive bequests to US colleges, stipulating that scholarships be awarded only to white men, forcing institutions to grapple with outdated and discriminatory conditions.

As citizens, individuals possess the sovereignty to shape society, meaning “You’re a citizen in a society and so you’ve got the same degree of political sovereignty as anyone else to say: ‘This is how I think society should be operated,'” says Stokes. While one viewpoint is that “I can give it away however I want,” these decisions carry consequences that demand ethical consideration. He underscores the obligation to strive for positive outcomes and avoid negative repercussions:

Stokes concludes that “There are real arguments about what the best distribution of goods in a society looks like, or how you balance those distributive concerns against personal autonomy or individual rights. And we need good practical reasoning to make those kinds of decisions.” For Stokes, the ethical imperative is clear: “If you recieve a bequest, I think there is some sort of ethical imperative to not just waste it. if somebody gives you their life savings when they die, you are morally obliged to spend that well.” He also adds “But you [also] have some responsibility for how you spend your money, and that includes spending it beyond the grave.”

Real-World Application: Leaving a Meaningful Legacy

Dale Schilling’s experience demonstrates how to thoughtfully approach inheritance. Inspired by a modest inheritance from relatives and the complexities of blended families, Schilling and his husband meticulously planned their wills. Schilling recalls “We’re one of these modern blended families,” Mr Schilling says. “Dad remarried,so I’ve got a stepbrother and sister and half-brother. And so that money got divided amongst the seven of us.”

Schilling decided to donate his inheritance to BirdLife Australia and BackTrack, smaller charities aligned with his values. Schilling explains “It was about picking charities that are meaningful for me, both for personal reasons, but also because I believe in how they’re going about things.”

Schilling also emphasizes the importance of open interaction with relatives. He shares “It’s a tricky subject because you don’t want people to rely on your inheritance,” also adding,”The last thing we want is a bunch of ‘waiters’ for nieces and nephews: people that are just sitting around waiting for you to die. It’s a sad thing when a relative passes away and you don’t want them looking forward to the money as opposed to wanting to spend time with you.”

Practical Tips for Ethical Inheritance

• Consider your values: Align your inheritance plans with your core beliefs and principles.
• Communicate openly: Discuss your intentions with family members to avoid misunderstandings and potential conflicts.
• Seek professional advice: Consult with financial advisors and estate planning attorneys to create a thorough plan that reflects your ethical considerations.
• Engage in Philanthropy: Consider donating to causes that address inequality or support community development. Even small amounts can make a significant difference.
• Promote Financial Literacy: Invest in education and resources that empower individuals to manage wealth responsibly and contribute to economic growth.

The impending wealth transfer in Australia presents both opportunities and challenges. By engaging in thoughtful discussions, embracing ethical responsibilities, and making informed decisions, individuals and society can harness the potential of inherited wealth to create a more just and equitable future.

How will you approach the ethical considerations of inheritance? Share your thoughts and experiences in the comments below.

References

Oxfam Report

What are some practical tips individuals can follow to ensure their inheritance is managed ethically and responsibly?

Navigating the Inheritance Minefield: An Interview with Estate planning Expert,Eleanor Ainsworth

Australia is facing a generational wealth transfer of unprecedented scale. but is inheriting a windfall an ethical blessing or a societal burden? We sat down with Eleanor Ainsworth, a leading estate planning specialist at ainsworth financial Solutions, to delve into the moral complexities of inheritance and what it means for the future of wealth distribution in Australia.

The Great Wealth Transfer: Opportunity or Problem?

Archyde: Eleanor, thanks for joining us. Australia is on the verge of a massive wealth transfer, with trillions set to pass down to younger generations. Is this just a natural transfer of assets, or a potential societal problem brewing?

Eleanor Ainsworth: Thanks for having me. It’s undoubtedly both. On one hand, it represents years of hard work and diligent saving by the baby boomer generation, who naturally want to provide for their families. However, the sheer scale of this inheritance has the potential to exacerbate existing inequalities if not managed thoughtfully. We’re talking about a potential shift that could solidify wealth concentrations for generations.

Individual Rights vs. The Greater Good

Archyde: Patrick Stokes from deakin University frames the inheritance debate as a clash between individual rights and the societal good.”It’s my money, I earned it, I can give it to my kids, right?” How do you reconcile that sentiment with the concerns about rising inequality?

Eleanor Ainsworth: That’s the core tension, isn’t it? People have a fundamental right to dispose of their assets as they see fit.But that right doesn’t exist in a vacuum. We all operate within a society, and our actions have consequences. I encourage clients to consider the broader impact of their inheritance plans. Are there ways to balance their desire to provide for loved ones with contributions to the community, perhaps through charitable giving or supporting initiatives that promote social mobility?

The Inheritance Tax Debate: A Necessary Evil?

Archyde: Australia abolished death duties in 1979 and is now one of the few developed nations without inheritance tax. Is it time to revisit this decision to prevent wealth from perpetually reproducing from one generation to the next, as Anglicare argues?

Eleanor Ainsworth: It’s a complex issue with passionate arguments on both sides. Proponents of inheritance tax argue it can level the playing field and fund essential services. Opponents worry about double taxation – taxing wealth that has already been taxed during a person’s lifetime – and the potential for discouraging investment and entrepreneurship. There’s no easy answer, and it requires a nuanced policy discussion considering all the potential economic and social consequences.

Ethical Responsibilities: Donor and Recipient

Archyde: What ethical responsibilities do both the giver and receiver have when it comes to inherited wealth?

Eleanor Ainsworth: For the giver, it’s about thoughtful planning. Consider the potential impact of your bequest, both positive and negative. Are there any unintended consequences? Are there restrictive conditions that might be problematic down the line? For the receiver,it’s about stewardship.If you receive an inheritance, large or small, there’s a duty to use it wisely and ethically. Think about how you can use that wealth to improve your own life, but also to contribute to the well-being of society. Maybe invest in education, support a cause you believe in, or start a business that creates jobs.

Leaving a Meaningful Legacy

Archyde: Dale Schilling donated his inheritance to charities aligned to his values. What options do people have to leave a meaningful legacy with their inheritance?

eleanor Ainsworth: Dale’s approach is admirable. There are countless ways to leave a meaningful legacy. Leaving a bequest to your favorite charity is a popular option, supporting causes ranging from environmental conservation to medical research. You could also establish a family foundation to support specific initiatives or create scholarships for students in need. The key is to align your inheritance plans with your values and passions.

Practical tips for Ethical Inheritance

Archyde: What practical advice would you give to our readers planning their estate or expecting to receive an inheritance?

Eleanor Ainsworth: First, start the conversation. Talk to your family about your plans and expectations. Open communication can prevent misunderstandings and resentment. Second, seek professional advice. An estate planning lawyer and financial advisor can help you navigate the legal and financial complexities of inheritance and create a complete plan that reflects your wishes. Third, consider philanthropy. Even a small percentage of your estate can make a significant difference to a cause you care about. promote financial literacy. Equip your loved ones with the knowledge and skills they need to manage wealth responsibly.

Archyde: eleanor, this has been incredibly insightful. Thank you for sharing your expertise with us.

Eleanor Ainsworth: My pleasure.

A Final Thought: What Does Ethical Inheritance Mean to You?

This conversation raises a critical question: What does it mean to inherit ethically? Does it involve donating a portion to charity, investing responsibly, or simply ensuring your family is well-cared for? We invite you to share your thoughts and experiences in the comments below. Let’s continue this vital discussion about wealth, responsibility, and the future of our society.