5 steps to take when you receive an inheritance 

Receiving an inheritance can be a life-changing event for many people, but it is crucial to seek advice from financial advisers to maximise the impact of the windfall.

Receiving an inheritance from a family member can spark mixed emotions – gratification that the money or assets can create long-term financial wellbeing, and sadness at the loss of a loved one.

The gift can also be a potential burden if the recipient is worried about squandering it. Here is a brief guide on how to respond to such an inheritance.

  1. Resist the temptation to make rash decisions

    Inheritances can take many forms – cash, property, shares, or perhaps treasured possessions that have been collected during a lifetime. Take time to decide the best course of action and remember that rushing out to buy a Ferrari is probably not the best option.

    Weigh up the options and consider all affected parties. For example, if you are the only beneficiary, settling an estate may be straightforward. However, if two or more siblings or family members are involved, there may be conflict over whether the assets should be retained or sold. In such circumstances, keeping the lines of communication open is crucial.

  2. Consider paying off any debts
    If the inheritance comes in the form of cash, it could well be smart to pay off any high-interest debts that you have incurred, whether it is a home loan, car loan, credit card debt, or some other financial impost. This is a chance to clear the decks – do not waste it.
  3. Seek financial or wealth-management advice

    Tax implications are often the most confusing aspect of an inheritance. In Australia, estate taxes are typically not owed on money that is inherited, but securities, death benefits from superannuation funds, real estate, and some other assets may be a different story.

    For this reason, it is important to seek the help of a financial adviser to determine short and long-term financial plans.

  4. Diversify your investments
    The adage that you should not put all your eggs in one financial basket holds true for inheritances. Building funds for the future through a variety of assets, including property, stocks and managed funds, is a smart move. Having a range of assets with different risk profiles can spread any threats associated with your investment choices.  Investments should be made in line with your wider financial plan and your financial goals. Your adviser can help you to define them and put a plan in place to meet them. 
  5. Consider making contributions into superannuation

    When considering your superannuation as a place for any inheritance, it is also important to take your life stage and financial goals into consideration. 

    However, taking advantage of superannuation may make sense, given that investment earnings are taxed inside super at a rate of just 15%, whereas with other investments the capital gains are typically taxed at your marginal rate. Be aware of ‘contribution caps’ that apply to how much you can pay into your super fund each financial year without having to pay extra tax. 

    It is advisable to access a superannuation financial adviser through a provider such as Mercer Financial Advice for clarity. 

An inheritance can be a once-in-a-lifetime opportunity to reshape your financial future. Take it slowly and always seek professional advice before making any major decisions.  
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Prepared by Mercer Financial Advice (Australia) Pty Ltd (MFA) ABN 76 153 168 293, Australian Financial Services Licence 411766.  Mercer Financial Advisers are authorised representatives of MFA. This information is of a general nature and does not take into account your objectives, financial situation or needs. Prior to acting on any of this information, we recommend you obtain financial advice that is relevant to your financial circumstances.  MFA’s Financial Services Guide is available at: MFA Financial Services Guide.

The contents of this page are based on information received in good faith from sources we believe to be reliable and accurate. Any reference to legislation or government policy reflects our understanding of it.  We recommend you obtain financial, tax or legal advice that is relevant to your circumstances. No warranty as to the accuracy or completeness of this information is given and no responsibility is accepted by Mercer or any of its related entities for any loss or damage arising from reliance on the information.

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