Guide to Intergenerational Financial Planning

Intergenerational Financial Planning and the Family Home

As its name suggests, intergenerational financial planning (IFP) aims to treat a family as what it so often is – a single, vertically-integrated economic unit. Most people naturally think across the generations when it comes to their wealth, and it’s only right that financial advice reflects this reality.

This is especially true when we consider the family home. According to the Australian Bureau of Statistics, our homes account for around 47% of all Australian household wealth. What’s more, while the dream of homeownership remains central to our culture, the path to achieving it has changed. Today, around two-thirds of Australians live in a home they own (with or without a mortgage), but this figure varies significantly between age groups. Put simply, homes are the cornerstone of financial security and aspirations for most of us.

We believe every client is a candidate for intergenerational thinking. We always take a little extra time with our clients to understand more about them, their perspective on life, and their relationships with family. The purpose isn’t purely social; this understanding often uncovers important facts, hopes, and attitudes that we can blend into our advice, making our strategies more personal and effective.

This eBook discusses one of the most significant elements in IFP: housing. Given the ongoing challenges of housing affordability and the shifting economic landscape, we think this is the perfect time to discuss how your home can be managed when thinking about the transfer of wealth across generations.

We'll explore three key aspects of the family home: how to manage it in retirement, how to help your adult children (or even your parents) purchase their own home, and how to manage the property upon entry into the aged care system.

The Family Home and Retirement Planning

One of the key benefits of the family home is that its value is exempt from the assets test used to determine your eligibility for the Centrelink Age Pension. Furthermore, if you need to move into an aged care facility, the home continues to receive special treatment. For the aged care means test, only a capped portion of the home's value is counted in the assets test, and it is exempt entirely if a 'protected person' remains living there.

These rules often provide a strong reason for older Australians to hold onto the family home, even after they have moved into residential aged care.

The Great Wealth Transfer

In 2021, the Australian Government's Productivity Commission released a landmark report, 'Wealth transfers and their
economic effects'. It confirmed what many of us have suspected: Australia is on the cusp of the largest intergenerational wealth transfer in its history.

The report found that inheritances are expected to quadruple in real terms by 2050. The wealth of older generations, largely built on the back of the property market, is now beginning to pass to their children and grandchildren. However, this transfer is happening later in life. The average age to receive an inheritance is now in the late 50s, long after many of the major costs of raising a family have been met.

This creates a fascinating dynamic: a significant transfer of wealth is coming, but its timing might not be ideal for recipients. This makes proactive, intergenerational planning more important than ever.

Inheritances upon Death – Estate Planning and the Family Home

The first thing to note is that a family home doesn't automatically form part of a person's deceased estate. The way a property is owned is key. Most couples own their home as ‘joint tenants’. This ownership structure includes a ‘right of survivorship’, which means when one owner dies, their share of the property automatically passes to the surviving joint tenant(s). The property only becomes part of an estate when a single, final owner passes away.

The main alternative is ‘tenants in common’. Under this structure, each person owns a distinct, separate share of the property (e.g., 50/50 or 70/30). This share does not automatically pass to the other owners. Instead, it can be gifted to anyone through the owner's will. Understanding the difference is fundamental to good estate planning. For a clear explanation of these two ownership types, this video from Legal Aid in New South Wales is a helpful resource:

Capital Gains Tax (CGT)

As long as a home was the principal place of residence of the deceased, there is generally no CGT payable when the property is transferred to beneficiaries or sold as part of the deceased estate.

The Australian Taxation Office (ATO) provides a two-year window after the owner's death for the beneficiaries or executor to sell the property without incurring CGT. It's possible to apply for an extension to this period in certain circumstances.

Furthermore, the principal place of residence exemption is quite flexible. If you move out of your home (for example, to travel, work elsewhere, or move into care), you can continue to treat it as your main residence for CGT purposes for up to six years if you rent it out, or indefinitely if you do not. The crucial rule is that you cannot claim another property as your main residence during that time. This can be particularly valuable if an older person needs to live with relatives for a period before moving into formal aged care.

Targeting the Inheritance

Sometimes, clients wish to leave specific assets to particular beneficiaries. A common scenario involves an adult child with a disability who has always lived in the family home. In these cases, parents might choose to leave the home directly to that child, while other assets, like shares or superannuation, are left to their other children. This is a powerful estate planning tool, but it requires careful thought to ensure the outcome is both fair and practical for everyone involved.

What to do with the Inheritance?

When a home is inherited, it can ultimately be kept or sold. If it's kept, a beneficiary might choose to live in it, making it their new principal place of residence and continuing its CGT-exempt status.

Alternatively, it can be kept as an investment. If the home is a typical residential property, holding onto it can be a sound financial decision. According to the 2024 Vanguard/Russell Investments ASX Long-Term Investing Report, the 20-year average return on Australian residential property to 31 December 2023 was 9.6% per annum. This return was remarkably similar to that of Australian shares (9.3% p.a.) over the same period, highlighting property's strong performance as an asset class.

Whether a home is kept often depends on the number of beneficiaries. As you'd expect, the more people who inherit a single property, the harder it can be to keep it. The beneficiaries would need to agree to become co-owners, which requires them to have similar goals and financial circumstances.

Keeping the home is most common when there are few beneficiaries. A sole inheritor simply makes their own decision. If there are a few beneficiaries, they might become co-owners. Another popular option is for one beneficiary to ‘buy out’ the share of the others, allowing one person to keep the family property while the others receive their inheritance in cash. This requires careful negotiation and valuation to ensure a fair outcome for all.

Timing the Inheritance

Most inheritances are received later in life. The Productivity Commission's research shows a clear trend: the probability of receiving an inheritance peaks when people are in their late 50s and early 60s.

What this tells us is that while inheritances are growing larger, they are typically arriving after the most financially demanding years of life—such as raising children and paying off a first home—have passed. This delay highlights a core challenge in modern financial planning: how can the wealth of one generation be used to help the next when they need it most? We will explore exactly this in the next chapter.

Assisting Younger Generations to Buy a Home

As we established in the introduction, the great wealth transfer typically happens after the recipient has passed their 50th birthday. By this age, they are often well past their peak expense years – the period when they are raising children and establishing their lives. The costs associated with raising children are significant, meaning cash flow is often tightest in a person's 30s and 40s.

Unfortunately, inheritances, when they come at all, usually arrive long after the children have grown up and flown the nest.

So, how helpful would that financial boost be if it could be received earlier in life – when it's most needed, but before the benefactor has actually passed away?

For this reason, a growing number of our clients are looking for practical ways to help their adult children buy a home now. The most common strategies include:

• Buying a home in conjunction with a child;
• Providing a guarantee for a loan;
• Utilising interest offset accounts;
• Gifting money for a deposit; or
• Making a 'soft loan' that is documented legally.

We'll discuss each of these in more detail.

Buying a Home in Conjunction with a Child

In some cases, parents and children choose to buy a home as co-owners. Typically, the parents might contribute to the deposit, assist with the loan repayments, or use the equity in their own home to make the purchase possible.

This strategy can be a fantastic way to get a younger person onto the property ladder, but it's not for everyone. The child ends up owning a share of a home, not the whole thing. For some, half a home is infinitely better than no home. For others, it might be less than they need or want. It's important to have a frank conversation about long-term intentions from the outset.

The strategy works best when family dynamics are clear and straightforward, for example, with an only child. In this situation, owning the property as joint tenants can be a good option. As we mentioned earlier, this means when one owner passes away, their interest automatically transfers to the other.

Alternatively, the property can be owned as tenants in common, where each party's share is legally separate and can be dealt with in their will. The decision of which ownership structure to use has significant legal and financial consequences, and you should always seek legal advice on this matter.

Guaranteeing a Loan

It's an open secret that a large percentage of first-home buyers receive parental help, and one of the most powerful forms of assistance is a family guarantee. Most major banks offer a 'Family Pledge' or 'Family Guarantee' loan.

These loans allow a family member (usually a parent) to use the equity in their own home as additional security for a child's loan. This can help the child borrow a higher amount or, more commonly, avoid the significant cost of Lenders' Mortgage Insurance (LMI), which is usually charged on loans with a deposit of less than 20%.

While this can be a very effective strategy, it's vital that the guarantor understands they are taking on a real financial risk. If the borrower defaults on the loan and the property has to be sold for less than the outstanding debt, the bank can call on the guarantor to cover the shortfall up to the amount they have guaranteed.

This risk diminishes over time as the loan is paid down and the property increases in value. However, it's a commitment that should only be made with a full understanding of the potential consequences.

Utilising Interest Offset Accounts

An offset account is a transaction account linked to a home loan. The balance in the offset account is deducted from the loan balance before interest is calculated. For example, on a $500,000 loan, a $50,000 balance in an offset account means you only pay interest on $450,000, which can save a huge amount of interest and shorten the life of the loan.

Some lenders allow parents to link their savings account to their child's mortgage as an offset account. This allows the child to get the full benefit of the interest saving, while the parents retain complete control of and access to their own money. The family as a whole is much better off, as the interest saved on the child's non-deductible home loan (e.g., 6.0%) is far greater than the interest the parents would have earned on their savings (e.g., 2.5%, which is also taxable).

It's critical to note that for this to work, the offset account is typically in the same name as the loan holder (the child). To protect the parents' money, a simple legal agreement, such as a Declaration of Trust, should be drawn up. This document makes it clear that while the money is in an account in the child’s name, it is legally the property of the parents. This is essential for protecting the funds in the event of a relationship breakdown or other unforeseen circumstances.

Gifts or Soft Loans

The most direct way to help is to provide cash for a deposit. This can be a gift or a loan.

A gift means the money becomes the legal property of the child. If that child is in a relationship, the gift may become part of the relationship's assets and could be subject to division in a family law settlement.

A 'soft loan', on the other hand, remains the property of the parents. This is a loan where the terms are favourable – for example, it might be interest-free and only repayable when the property is sold. The fact that the money is a loan provides significant protection. It must be properly documented in a formal loan agreement, and for maximum protection, it can even be secured via a mortgage registered against the property's title.

The Importance of Written Agreements

While we may see our family as a single unit, the law does not. Any time significant sums of money are transferred between family members, the arrangement should be documented in a written legal agreement. This isn't about a lack of trust; it's about creating clarity and protecting everyone from unintended consequences down the line, particularly relating to tax, Centrelink, or potential relationship breakdowns.

Superannuation and the Family Home

Ultimately, a home must be bought with after-tax dollars. This means the tax you pay has a direct impact on how long it takes to save a deposit. The less tax you pay on your income, the less you need to earn to save the same amount.

The following table shows how much pre-tax income is required to save $50,000, depending on the tax rate applied.

(Note: Tax rates are indicative for the 2025-26 financial year, including the 2% Medicare Levy)

The 15% tax rate is what's paid on concessional superannuation contributions. As you can see, saving inside the low-tax super environment can dramatically reduce the amount of pre-tax income needed. Recognising this, the government created a specific mechanism to help people do just that.

The First Home Super Saver (FHSS) Scheme

The best strategy for most first-time savers is the FHSS scheme. This allows an individual to make voluntary contributions to their own superannuation fund to save for their first home.

You can contribute up to $15,000 per year.

The total amount you can contribute and withdraw is $50,000 (plus associated earnings).

Contributions can be made before-tax (like salary sacrifice) or after-tax. The pre-tax contributions are taxed at only 15% inside the fund, providing a significant tax saving for most people.

When you're ready to buy, you apply to the ATO to withdraw the funds. The withdrawn amount is taxed at your marginal rate, less a 30% tax offset, resulting in a favourable tax outcome.

Case Study: Chloe uses the FHSS Scheme

Chloe earns $90,000 a year and wants to save for a deposit. Her marginal tax rate is 32% (including Medicare). She decides to salary sacrifice $15,000 into her super fund for the FHSS scheme.

This only reduces her take-home pay by $10,200 for the year ($15,000 less her 32% tax saving).

Inside her super fund, the contribution is taxed at 15%, so $12,750 is added to her FHSS balance.

In just one year, she has turned $10,200 of take-home pay into $12,750 towards her deposit—a $2,550 boost from the tax saving alone.

If she does this for just over three years, she can reach her $50,000 cap and will be well on her way to a deposit, having saved far more quickly than if she had saved outside of super.

The FHSS scheme is the most powerful tool available for the younger generation to accelerate their savings, and it should always be the first port of call.

The decision of what to do with the family home is often the most significant and emotionally charged part of planning for a move into residential aged care.

At our practice, we recognise the family home as the cornerstone of most people’s wealth and a place filled with irreplaceable memories. For this reason, our starting point is that the home should be retained whenever possible, and we explore every avenue to make this happen if it aligns with your wishes.

That said, no two clients are the same. Each person's financial position, family situation, and personal preferences are unique, and the right choice depends entirely on these individual circumstances. In some cases, selling the home is clearly the most sensible and beneficial path forward.

The following sections discuss the interplay between the family home and aged care planning. We will walk through the general themes, benefits, and drawbacks that need to be carefully considered when you are planning for this next stage of life.

There are many potential benefits of retaining a family home when moving into residential aged care. These include:

• Reducing your assessable assets for the means-tested care fee calculation, as the value of the home is capped for this purpose.
• Retaining an asset from an asset class that has, as we saw in the introduction, traditionally performed as well as or better than most other asset classes over the long term.
• Retaining the ability to borrow against the home (for example, through a reverse mortgage or equity release loan) to fund care costs.
• Keeping the option to derive rental income from the home to help cover expenses.
• Maintaining exposure to the property market and potential capital growth, which is particularly relevant for longer stays in care.
• Keeping your wealth in an investment that is generally free from Capital Gains Tax.
• The significant personal and emotional wellbeing that comes from knowing the family home has been kept.
• Ensuring the home remains available for inheritors, which may be an important part of your family's long-term plan.

There are also powerful potential benefits of selling a family home when moving into aged care. These include:

• Providing the cash to pay the Refundable Accommodation Deposit (RAD) as a lump sum, which is required by many people entering care.
• Achieving a high effective rate of return by paying the RAD. By paying the RAD, you avoid having to pay the Daily Accommodation Payment (DAP), which is calculated using the government-set Maximum Permississible Interest Rate (MPIR). As of the current quarter, this rate is 8.34% per annum. Paying the RAD is equivalent to investing your money for a guaranteed, tax-free return of 8.34%—a rate that is very difficult to achieve elsewhere with such low risk.
• Avoiding the potential complexities and costs of managing a tenancy or organising a reverse mortgage from within an aged care setting.
• Freeing up significant cash flow to be used for other lifestyle choices, such as paying for extra services, outings, or other comforts within the aged care facility.
• Simplifying your financial affairs, which can reduce stress for you and your family, especially where multiple people are involved in your financial decisions.

In determining what to do with your family home, there are a number of particular factors that should influence the decision. These are discussed in the following sections.

The Home is Usually the Major Asset

For most Australians, the family home is by far their most significant asset. By the time a person needs to move into aged care, any superannuation or other savings they had at retirement have often been drawn down to fund their life in the preceding years.

Recent data from the Australian Institute of Health and Welfare (AIHW) supports this. Their analysis shows that the vast majority of people entering permanent residential aged care receive some form of government support, with over 60% being on the full Age Pension. This tells us that most people have relatively few assets outside of the family home (which, as we know, is exempt from the Age Pension assets test).

Accordingly, the decision you make about your home will likely be the most important financial decision of your later life.

Frailty

A person contemplating a move into residential aged care is, by definition, frail. It is common and often necessary for at least one other person, usually a trusted family member, to be involved in their financial management.

This reliance on someone else requires a high degree of trust. It is not uncommon for children or grandchildren to begin seeing their older relative's assets as a future inheritance. While this is often unconscious, it can lead to conflicts of interest. The Office of the Public Advocate in Victoria provides clear guidance that family members do not have a right to an inheritance while their loved one is still living and that the older person's needs must always come first.

As professional advisers, our duty is clear. The law, and our own ethics, require us to act solely in the best interests of our client – the person moving into care. You can be sure that our advice will always represent our professional opinion on the best course of action for you.

Powers of Attorney

Ideally, an older person will have already appointed one or more trusted people to act for them under an Enduring Power of Attorney. This legal document empowers the nominated person (the 'attorney') to make financial and personal decisions on their behalf if they are no longer able to.

The key thing for any attorney to remember is that they have a strict fiduciary duty to act in the best interests of the person who appointed them. This means the older person’s financial security and wellbeing must take precedence over all other considerations, including the interests of future beneficiaries. You can find excellent, plain-English information on the responsibilities of an attorney on the website for your state's Public Advocate or Public Trustee.

The Length of Stay in an Aged Care Facility

One of the most challenging factors in this decision is that the length of stay in an aged care facility is unpredictable.

However, we can use data to make an informed estimate. According to the latest analysis from the AIHW, the average length of stay in permanent residential aged care for a person who enters and subsequently passes away in care is approximately 3 years.

Of course, this is just an average, and there is significant variation. The data shows:

• Around 25% of residents stay for less than 1 year.
• Over 20% of residents stay for more than 5 years.

Relatively long stays are common, and the system accounts for this. One key protection is the lifetime cap on the means-tested care fee. Once your payments reach this cap, you cannot be asked to pay any more of this specific fee for the rest of your life. As of 2025, this lifetime cap is around $85,000 (this figure is indexed annually).

The Presence of a ‘Protected Person’

The decision of whether to keep the home is often made for you if a 'protected person' will continue to live there after you move into care. A protected person generally falls into one of these categories:

1. Your spouse or partner.
2. A dependent child (under 16, or a full-time student under 25).
3. A carer who has lived in the home with you for at least the last two years and who is eligible for an Australian income support payment.
4. A close relative who has lived in the home with you for at least the last five years and who is eligible for an Australian income support payment.

If a protected person remains in the home, its value is completely exempt from all aged care means testing. In these situations, there is almost always a compelling financial and emotional reason to keep the family home.

The Absence of a Protected Person

Where there is no protected person living in the home, the decision becomes a purely financial and personal one. You and your adviser will need to carefully weigh the pros and cons discussed in the previous chapter to decide on the best path forward.

Capital Gains Tax (CGT)

One final factor worth remembering is that the CGT-free status of your family home is very generous. The principal place of residence exemption can continue for up to six years after you move out, provided you rent it out and do not claim another property as your main residence. If you do not rent it out, the exemption can continue indefinitely.

This means that for up to six years after you move into an aged care facility, the home can continue to grow in value without attracting any CGT. This valuable tax benefit should always be weighed against the alternative uses for the money if you were to sell the home.

There are three types of fees that will definitely apply to a homeowner moving into an aged care facility, and a fourth that may be optional. The three 'definites' are: the accommodation payment, the basic daily care fee, and the means-tested care fee.

The basic daily care fee is a standard amount paid by all residents (set at 85% of the single Age Pension) and is not affected by your assets, so we do not need to consider it here. This leaves two definite costs that will be directly affected by your decision about the family home.

The 'probable' fee is any 'extra' or 'additional' service fee charged by the facility for things like newspapers, special meals, or Foxtel. This is a separate arrangement with the provider.

In the section that follows, we will focus only on the two definite fees that are impacted by your decision to keep or sell the family home.

The Means-Tested Care Fee

This is a contribution towards the cost of your personal and clinical care, and it is determined by an assessment of your income and assets.

The family home is included in this assets test, but it receives special treatment. If there is no 'protected person' living in it, the value of the home included in the test is capped. As of today, that cap is $201,231.20. This figure is indexed twice a year.

This cap often creates a financial incentive to keep the home. While the home is kept, no more than $201,231.20 of its value is counted, no matter how much it is actually worth. If the home is sold, the entire net proceeds of the sale are counted in the assets test. For most properties, this significantly increases your assessable assets and, therefore, is likely to lead to a higher means-tested care fee.

Accommodation Costs

While the decision about the home may have a marginal impact on the means-tested care fee, its most fundamental impact is on how you pay for your accommodation.

Accommodation Costs – Deposit or Daily Payment?

Anyone who owns a home will almost certainly be asked to pay the full cost of their accommodation. These costs can be paid in two ways:

1. As a lump sum, called a Refundable Accommodation Deposit (RAD).
2. As a daily rental-style payment, called a Daily Accommodation Payment (DAP).

You can also choose to pay with a combination of both. The RAD is negotiated with the aged care provider, and the DAP is calculated directly from the RAD.

A Critical Figure – The Maximum Permissible Interest Rate (MPIR)

The DAP is calculated using an official interest rate set by the government, the MPIR. This is the single most critical figure in your decision. As of the current quarter (July-September 2025), the MPIR is 8.34% per annum.

A resident moving into care can either pay the RAD as a lump sum or pay a DAP equivalent to 8.34% of the outstanding RAD amount. For a room with a $500,000 RAD, the DAP would be $500,000 x 8.34% = $41,700 per year, or $114.25 per day.

Financially, the decision is simple: if your money is not earning more than 8.34% after tax, you are better off using it to pay down the RAD. As an effectively guaranteed, tax-free rate of return, 8.34% is incredibly hard to beat.

For example, a resident with $100,000 in a savings account earning 3.5% interest ($3,500 per year) would be far better off using it to pay part of their RAD. That $100,000 would save them $8,340 per year in DAP payments.

Therefore, any cash or other low-yielding assets should almost always be used to pay the RAD before other options are considered.

Paying a RAD While Keeping the Family Home

If you have other assets, you can keep the home and pay the RAD. The RAD can be funded in several ways:

• Using other assets: As above, any cash, term deposits, or conservative investments should generally be liquidated to pay the RAD, given the high effective return.
• Borrowing a lump sum: You could take out a loan, such as a reverse mortgage, to pay the RAD. This only makes sense if the interest rate on the loan is less than the MPIR of 8.34%. With borrowing rates also being high, the potential to profit from this 'arbitrage' is limited, but it can exist.
• Having someone else pay: A child or other family member could lend you the money to pay the RAD. This is an excellent strategy for the family as a whole, as it directs the family's cash towards the best available return. These arrangements must be documented in a formal loan agreement. This ensures the money is returned to the lender from your estate and is not considered a gift, which could have negative consequences for your means testing and for your estate plan.

Ways to Pay a DAP While Keeping the Family Home

If you keep the home and do not pay the RAD in full, you will need to fund the ongoing DAP. This requires a strong and reliable cash flow.

• Rent the family home: This is a common strategy. However, with rental yields averaging 3-4% in most cities, the income is often not enough to cover a DAP calculated at 8.34% of the property's value. The rental income would also be assessed under the income tests for both the Age Pension and the means-tested care fee, which could reduce your pension and increase your care fees.
• Borrow against the home: You can use a reverse mortgage or line of credit to meet the DAP payments. Essentially, the bank pays the DAP for you, and the debt against your home increases over time. This preserves the home but reduces the final equity available for your estate.
• Use cash flow from elsewhere: You might have a share portfolio with a strong dividend stream or income from another investment property. So long as those assets are expected to generate a total return (growth plus income) greater than 8.34%, it can make sense to keep them and use their income to pay the DAP. Alternatively, a family member who wishes to preserve the home might agree to pay the DAP on your behalf. Again, any such arrangement must be formally documented.

This final chapter shows that there is no single 'right' answer, only the answer that is right for you. The decision rests on a careful analysis of your assets, your family's goals, your health, and your personal wishes.