Receiving an inheritance can materially change your financial position, but it can also arrive during an emotional period. There is rarely a need to make every financial decision immediately. Taking time to understand the amount, your existing position and the tax or legal issues involved can help you avoid rushed choices.
Start by Keeping the Money Safe
Before making major investment or spending decisions, consider holding the funds somewhere secure and accessible while you work through your options. This creates time to understand what you have received and whether any tax, estate or legal matters still need to be resolved.
Review High-Cost Debt
An inheritance may create an opportunity to reduce expensive debt. Credit cards and personal loans can carry high interest costs, which are usually not tax deductible, but you should also consider emergency savings and future cash needs before using all available funds.
Should You Pay Down the Mortgage?
Reducing a mortgage can lower interest and future repayments, but money placed permanently into the loan may be less flexible than funds kept in an offset account, depending on the loan structure.
Could Superannuation Be Relevant?
Depending on your age, contribution history and caps, contributing some inherited money to super may support retirement planning. However, super is generally preserved until a condition of release is met, so liquidity may be impacted.
Think Before Investing a Large Lump Sum
A large inheritance can tempt people to make immediate investment decisions. Consider your goals, timeframe, risk tolerance and diversification before investing.
Moneysmart notes that financial advice can be useful when managing an inheritance because it is a major life event. Its adviser guidance explains how to prepare for financial advice.
Review Your Own Estate Planning
A material increase in wealth can also be a reason to review your will, powers of attorney and beneficiary arrangements.
Give the Inheritance a Purpose
Rather than thinking only about what to buy, decide what the money could change in your financial life: debt reduction, retirement, family support, housing, education or long-term investment.
If an inheritance has changed your financial position and you want a clearer plan, complete the Setch Group Financial Healthcheck.
Frequently Asked Questions
Should I invest an inheritance immediately?
Not necessarily. Taking time to clarify goals and tax considerations can help avoid rushed decisions.
Should I use an inheritance to pay off debt?
It may make sense for expensive debt, but emergency savings, liquidity and other goals should also be considered.
Can I put inherited money into super?
Potentially, subject to contribution caps, eligibility and your circumstances.
This article contains general information only and not financial advice.
