Redundancy, Inheritance & Lump Sum Advice

What is an Inheritance? 

To put it plainly, inheritance is the passing down of assets from one person to another, which takes place after someone has passed away. Assets are known to be valuable items that can take many different forms, including cash, property, and investments. 

To manage an inheritance as best as possible, it is integral to prioritise how you intend on utilising it, which can be dependent on your goals. If the inheritance is viewed as a windfall, you may elect to gift it to your children. If you have debt, such as personal loans or credit card debt, it may make sense to pay these off to start with. This logic would also be applicable if you have little to no emergency funds.

We can assist you in managing your inheritance and having this work towards your long-term goals and objectives. Whether this is to pay off debt, invest for your future, provide an income stream, or look after dependants, we will help guide you through the decision-making process to give you the best options, as we understand this can often be an overwhelming time.

Receiving an inheritance should be considered a blessing, although if not managed correctly, it can often result in a large tax bill. An estimated amount of 3.5 trillion is set to be handed over to younger Australians from baby boomers within the upcoming 20 years, resulting in Australia being on the brink of its largest handover of wealth to date.

Factors to be Considered When Determining How to Invest an Inheritance

Determining the best way to invest an inheritance varies depending on each person’s specific situation and individual goals. With this said, age is always a useful factor in determining the options available for those receiving an inheritance, along with considering the person’s risk profile.

Past research has demonstrated that 80% of money passed down from parents goes to people aged 50 and over. This could mean the recipients of the inheritance are likely to be in retirement or nearing that stage of their life and depending on this one option that is always worth considering is whether you can make any contributions to your superannuation, in line with government regulations.

Investing an Inheritance into Superannuation

Superannuation is an avenue we consider for clients and can be the best way to invest in inheritance. It is a tax-effective method for growing and sustaining retirement funds and can often lead to more desirable outcomes in the long term. This is due to the low concessional rates for earnings and contributions, generally in conjunction with tax-free withdrawals that are made accessible once the preservation age is reached.

With funds that are not used to grow a superannuation balance, we may then consider the option of an investment portfolio outside of superannuation. By choosing to invest an inheritance, it can provide you with the opportunity to compound wealth that otherwise may not have been achievable.

Other Avenues to Utilise When Choosing to Invest an Inheritance

Investing a sizeable amount of money that stems from an inheritance, it is generally best to ensure that the investments you make are diverse. This would mean expanding your investment portfolio by investing in various funds, bonds, and stocks, which can create a good risk-adjusted return for an inheritance. You may also be advised to set up a specific structure to invest the money to make it more tax effective in the future.

One inclination you may have is to simply leave your inheritance windfall in a bank account because it is secure and simple, however, this is unlikely to be the best use of the money. This is because you would ideally prefer to see your inheritance really work for you towards your life goals. To manage an inheritance to its full potential, you should properly explore all your options, and consider what is important to you, which is where the assistance of a financial planner can really help.

When considering these avenues of investing, it is good to begin by acknowledging your risk tolerance as all investments are dependent on your individual risk tolerance and profile.

Tax Obligations 

There are various tax-effective measures to be harnessed when investing an inheritance, with one of the most commonly used methods being superannuation, as mentioned above. These tax-effective measures are all dependent on extraneous variables in relation to your specific situation, including age, risk tolerance, and profile.

Australia doesn’t have an inheritance death tax in any of its territories or states, which allows for the total of the deceased’s estate to be left untouched. While there is no standing inheritance tax, changes that occur to someone’s financial situation following an inheritance may be subject to taxes, such as interest earned, capital gains, etc.

It is highly recommended that you talk to an expert in this situation, as an experienced financial advisor can help you identify the best way to invest an inheritance while developing a strategy that aids you to reach your long-term investment goals, as well as help you avoid the possible tax pitfalls.

How can we help you?

Contact us at Smart Wealth Financial Solutions office or submit an inquiry online.

I am exceptionally happy with the quality of the advice and service that I continue to receive from Chris. Over the years I have been impressed with his breadth of knowledge and expertise, and his ability to deliver it in a simple to understand manner.

Tony Marshall
Long term client