Jan 21, 2022

Our insights

While receiving an inheritance is incredible, it can be overwhelming too.

With more Australians set to receive an inheritance — ‘Baby Boomers’ will pass on $3.5 trillion over the next 30 years, according to the Productivity Commission  — it's important for both the givers and receivers to be ready.

Whether the amount is a lot or a little, inheritors have an opportunity to make smart moves that will set them up for success, and potentially future generations too. Or, without a strategy, an inheritance can become a burden.

So, what should those who are set to receive inheritances do?

Think smart

Sometimes negative emotions like grief and guilt accompany an inheritance; while processing the death of a loved one, there also comes an unexpected gift.

That's why it's essential to not rush into any big decisions about how to use or spend your newfound wealth.

Quickly inflating your lifestyle is a common trap. Instead, take it slow, focus on cultivating a mature wealth mindset and approach, and resist any big-ticket items that could drastically increase your cost of living, even though you might think you can afford it.

Some experts do suggest splurging on a small indulgence, especially if it's in honour of your loved one - it could be a way to ‘scratch the itch’ with little financial impact, while also being a tribute. But it has to end therel. Every extra dollar misspent has a tangible impact on your future.

Pay off the debt

An inheritance is a huge opportunity to erase those debts and associated interest fees, giving you a clean slate and fresh start.

Start with eliminating high-interest debt, such as credit cards and the like. Then tackle long-term debt, such as a mortgage. 

Invest in what matters

What do you value? What’s most important to you?

Is it your children's education? Then consider starting or boosting a savings fund for their schooling.

Do you want to be able to weather any financial storms? Then build up a robust emergency fund.

Do you picture yourself retiring comfortably, in a home you love, and with all the medical care you need? Then top up your superannuation or consider other investment options.

Do you hope to pass on a financial legacy? Then review and invest in your inheritance and estate planning needs while working on a diversified investment portfolio.

There are so many different pathways forward. Successfully utilising an inheritance starts with putting a clear strategy in place with the help of a professional. 

Tax and legal considerations

Inheritance can come in varying assets such as property, shares, interest or hard cash. The form influences how it can be used, which is why it's essential to chat with a professional to understand what it entails.

Inherited assets can also come with inherited problems. For example, things can become complicated if there's shared ownership, particularly if disputes arise.

It's important to talk to an accountant and potentially an experienced lawyer, along with your financial adviser. Investing in good counsel could be the best move you make. 

Work with proven professionals

Unfortunately, having money also brings people and 'opportunities' that are not always best for you. A friend with an ‘investment opportunity’, the latest cryptocurrency or self-professed experts with dubious track records. Instead, find a trusted, experienced financial adviser who can help you navigate towards achieving your wealth goals and maximising this rare opportunity. This shouldn’t be a one-time thing, your adviser can help you on every step of your wealth journey.

This is a once in a lifetime opportunity, and your loved one has given you a huge boost. Honour them by using the inheritance well. 

Talk to the team at Calder Wealth Management to discuss your options, the right way. Call us on (08) 8373 3333 to schedule your free initial appointment.

Written by Ben Calder at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.