Receiving an inheritance
Receiving an inheritance can be both exciting and stressful, so it’s important to make decisions that will benefit you and your family in the long term.
There are many things to consider when you receive an inheritance. Dealing with legal, financial and personal issues can be stressful so it’s important you get the right help. We explore a few options that may help you manage an inheritance and strengthen your financial future.
Benefiting financially from a family member’s death is a topic that most people avoid discussing, and one that can create some levels of stress.
If you’ve received an inheritance, it’s a good idea to take a step back and work out what is important. The first question you should ask yourself is not just what to do with it, but how you want to plan for your financial future and how the inheritance could help.
How is the inheritance determined?
The process largely depends on whether the deceased had a will. If they did, the executor (which could be you) will organise the distribution of assets once they receive a Grant of Probate and a Death Certificate.
Before anything is passed on to the beneficiaries, the executor needs to ensure that all the deceased’s debts, taxes and funeral expenses are covered.
If the deceased person did not prepare a will or nominate an executor, there are laws which determine what happens next. The courts can appoint an administrator, which could be their next-of-kin or an independent trustee. It will be their role to identify and contact beneficiaries, and then start the process of distributing the estate according to the law.
Dealing with the stress
Receiving an inheritance can be a stressful time for many reasons.
- the loss of a loved one
- dealing with family members who didn’t receive an equal share
- going through the court to resolve a disagreement
While we all handle these situations differently, it’s important to deal with the loss before making any major financial decisions. Don’t be afraid to seek counselling if you need help.
Griefline provides free and confidential counselling and support to people experiencing grief and loss across Australia, inclusive of remote, regional, rural and metropolitan regions.
What could I receive?
As a beneficiary of a deceased estate, you could receive personal belongings, a lump sum of cash either from savings or an insurance policy, assets such as property or shares, or even a business or an ongoing income from a retirement pension.
It can take some time to determine who gets what and for proceeds to be distributed, for example, where there are multiple beneficiaries, assets that need to be liquidated (turned into cash) or complicated arrangements like a business partnership.
Do I have to pay tax on my inheritance?
There are no direct inheritance or estate taxes in Australia. However, the legal representative dealing with the estate may have some tax and superannuation issues to attend to. To learn more about deceased estates, please visit the ATO website.
What should I do?
Once you've received your inheritance, you may need to make some financial decisions. These could be based on several considerations:
- the amount of the inheritance
- your age and general health
- family situation, e.g. children
- any home loans or personal debt you have
- your income and tax arrangements
What are my options?
In the case of a larger inheritance, there’s a lot to consider. You could pay off all or part of your mortgage, or put money aside for your children’s future – the options are endless. Getting advice from a financial planner might help you decide the best way forward.
If your inheritance comes in the form of valuable items, then you’ll need to decide whether to keep or sell them. This may also have tax implications down the track. To learn more, visit the ATO website.
If you receive a modest inheritance (say under $50,000) you might want to clear some debts, update your car, or do a few home repairs.
Alternatively, there are a few investment options you could consider.
Savings account – A place to park your money while you deal with any personal or family issues. Generally seen as very safe but providing low returns.
Shares – Considered riskier than cash, but with higher returns over the long term. Talk to an experienced financial adviser to help you with an investment strategy to suit your individual needs.
Property – While property prices have skyrocketed over recent years, each location is different, so do your research before deciding to purchase.
Super - Receiving an inheritance could also be an opportunity to boost your super (or your spouse’s). If you’re thinking of making an extra contribution, here are a few important points to consider.
- Tax benefits - The super contributions you make before tax (concessional) are taxed at 15%. To learn more, visit our contributions page.
- Bring forward rule - The after-tax (non-concessional) contributions cap is (at 1 July 2021) $110,000 per year. If you're under 67 you can contribute up to $330,000 in total over a three-year period, depending on your total super balance (on 30 June of the previous financial year). For more information, visit our contribution strategies page.
- Access – Usually, you can’t access your super until you retire or reach your preservation age. Super could be a way to avoid the temptation of spending your inheritance too soon. Find out when you can access your super.
[ Tip: Reviewing your investment options at least once a year may help you to make sure your investment options continue to reflect your individual needs. A good time to review could be when you receive your annual statement.]
Whatever you decide to do with your inheritance, you do have the option to seek financial advice from a qualified professional. This could help protect you financially and help make sure you’re making the best financial decisions for your future.
There's a lot to think about when it comes to managing an inheritance.
Consider making a willA will may help avoid putting your family through unnecessary stress when you pass away. A will can ensure that your assets are distributed according to your wishes. Perhaps talk to your parents about making a will also.
Look after yourselfDealing with a loved one’s death is both sad and stressful. When the time comes, make sure you take care of yourself first before making any financial decisions.
Know what to expectThe executor’s role in administering the estate can be lengthy, with many hurdles to clear before any assets are distributed. There is a lot of information available online which may help guide you, depending on your state or territory. If you’re uncertain, please consider legal advice from a professional.
Clear debtsIf you’re paying high interest rates on a credit card or personal loan, you may consider paying these out first.
Consider a contribution to your superContact a LUCRF Super financial adviser to discuss the possible benefits of contributing a lump sum into your super.
Consider advice from qualified professionals
- An experienced financial adviser can provide guidance on investment options such as shares and bonds.
- Accountants and tax advisers may help you understand the tax implications of liquidating or keeping what you inherit.
- Legal advice can help you understand how to structure your inheritance, for example, testamentary trusts may help protect your new assets from events like divorce.
The information in this article is general only and does not take into account your personal financial situation, objectives or needs. It is essential that you read the relevant Product Disclosure Statement, Financial Services Guide and Target Market Determination before making a decision about any financial product. Also consider obtaining financial or legal advice tailored to your own circumstances before making a decision about any inheritance you receive.
Limits apply to each type of contribution. Other concessions, conditions, restrictions and penalties may also apply. For full details read the Super Member Guide Product Disclosure Statement (PDS).
Advice about your super is included in your membership fees.