More Kiwis are dying wealthy and leaving large inheritances thanks to booming property and asset values.
These windfalls between generations largely escape the taxman but some say the Government should be taking a slice to avoid a "looming disaster" as baby boomers retire.
A Treasury spokesman said there had been no discussion around taxing inheritances but its Long-term Fiscal Position consultation plan, set to be published on Tuesday, noted many countries tax large inheritances or gifts.
"While these often come with significant exemptions and integrity risks, their economic cost is likely to be relatively low although they do raise questions of fairness for those affected.''
Other OECD countries use the taxes to raise between 0.1 per cent and 0.7 per cent of their GDP, the report said.
The proportion of New Zealand's GDP spent on health and superannuation is projected to hit 18.2 per cent by 2061, when people over 65 are expected to make up more than a quarter of the population.
The spend would go from $39.7 billion to $268.9b.
Victoria University of Wellington associate professor in commercial law and taxation Dr Jonathan Barrett said gifts and inheritances above a trivial amount should come under the Income Tax Act.
Barrett supported a capital transfer tax but said estate taxes were politically unpopular.
"New Zealand technically doesn't tax capital at a national level, although some amounts included in income would be treated as capital if we had a comprehensive [capital gains tax]. This means that there is a disproportionate reliance on a small range of taxes like GST and individual and corporate income tax."
For most people, wealth was determined by home ownership: "As baby boomers start to leave property to their children we are likely to see a widening wealth inequality gap," he said.
He said Ireland's model could work in New Zealand. A capital acquisitions tax, supplemented by a discretionary trust tax, sees the recipient taxed at about 33 per cent, not the deceased estate.
Craigs Investment Partners head of private wealth research Mark Lister said the elephant in the room was the Government was heading towards a future where it would not be in a position to pay superannuation to everyone.
He said the estimated tax shortfalls were, in his view, "a looming disaster".
"The numbers are quite scary ... Long story short we will have more old people than young people to collect tax from. That is not a new problem but a tough one to fix as it's not exactly a vote-winner."
Raising the eligibility age of Super or applying asset- or means-testing were political hot potato options. Alternatively, the tax system could be rejigged.
He said the problem with inheritance taxes was the structure often left loopholes.
"Those who can afford it can get very smart lawyers and accountants to weasel their way out of them.
"There will be a lot of Kiwis who don't feel particularly wealthy but are actually sitting on a pretty big nest egg in form of their house, farm or business.
Art collections, antiques, classic cars - all assets had gone up in value due to low interest rates, he said.
"So some people are in for some exceptionally high inheritances."
Public Trust chief executive Glenys Talivai said that during the 2021 financial year it had distributed $615 million to beneficiaries of estates.
Anecdotally, the Public Trust had seen an increase in estate values due to property value rises.
"Our Tauranga customer centre team is increasingly seeing scenarios where an elderly person passes away and while they may leave very little in the way of cash, having lived frugally on just their superannuation, their home is valued around $1 million."
Most inheritances went to the deceased's spouse or children.
Simon Anderson, the managing director of the Realty Group Ltd, which operates Eves and Bayleys, said the lift in rural, commercial and residential property values had increased people's wealth.
He said more parents were leveraging off their own home to get their children into a house as an early inheritance.
''I know from my own situation, our family trust has allocated out to the family some share of that trust, prior to the trust being wound up. As long as you have the cash flow you can do that ... and I don't think that has changed over the years, parents who can help their children are.''
Anderson said the money for healthcare and superannuation had to come from somewhere - property or earnings - but it was not an easy fix.
Figures from the Ministry for Social Development annual report show superannuation entitlements jumped from $14.5b in 2018/19 to $15.5b in 2019/20.
Te Ara Ahunga Ora Retirement Commissioner Jane Wrightson said NZ Super had been around since 1938 and there was no reason it would not be in place for future generations.
The increased GDP spend on NZ Super would be offset by drawdowns from the NZ Super Fund.
"Additional spending on the system will naturally spark discussion around raising the age of eligibility, means-testing or introducing other tax reforms."
She said there was no easy solution and proposed changes needed deep analysis.
"You run the risk of penalising or disincentivising people whatever way you look at it.
"What's critical is that we have a stable framework that enables trust and confidence in the system. Current and future older New Zealand residents need to live with dignity and mana."
• Ensure ashes of their deceased pets are buried with their own ashes when they die.
• Gift a vinyl record collection and DJ mixing tables.
• Continue to pass on Japanese silk kimonos handed down through generations.
• Gift a selection of firearms and hunting knives.
• Pass on a collection of power tools.
- Source Public Trust
• More than 50 per cent of adult New Zealanders don't have a will.
• Anyone over 18 years who has assets worth $15,000 or more should have a will (the average KiwiSaver balance is now $17,000)
• Having a will in place is an important part of your financial planning that goes beyond the distribution of assets, helping you to be remembered in the way you want to be and ensuring treasured objects reach whanau and friends.
• A will creates certainty of how you would like your estate divided when you die and who it should pass to.
• If you die without a valid will in place, it's called dying intestate. Essentially, your estate is divided according to the Administration Act.
- Source: Public Trust
The S&P/NZX 50 Index closed down 0.10%, falling to 12,627.32.