How to maximise the impact of your inheritance

Australia’s $3.5 trillion wealth transfer: how to invest an inheritance wisely

Australia is entering one of the largest intergenerational wealth transfers in its history. Over the next two decades, Australians aged 60 and over are expected to transfer around $3.5 trillion in wealth¹. As more Australians receive an inheritance, taking time to develop a clear plan may help turn inherited wealth into long-term financial security.

Whether your inheritance is a modest sum or worth millions, taking time to develop a clear investment strategy may help ensure the funds support your long-term financial goals.

The first steps...

Receiving an inheritance often comes with a mix of emotions, which can make it difficult to think long term. Rather than rushing into financial decisions, taking time to develop a clear plan may help you make the most of the opportunity.

An inheritance may come in the form of cash, property, shares, managed investments or superannuation benefits. Each type of asset may be subject to rules around their transfer and relevant capital gains or estate taxes. Those rules can be confusing, so it may be helpful to get accounting, legal or wealth-planning advice early to ensure major decisions are made with a full understanding of the implications.

What does a financial plan look like?

A well-structured financial plan may help you make the most of an inheritance and ensure it supports your long-term goals. Consider starting with the following:

• Conduct a financial stocktake. Review your income, savings, debts and existing investments to understand your overall financial position. Before investing an inheritance consider whether paying off any high-interest debt or setting aside an emergency savings buffer could provide greater financial security.

• Set clear financial goals in line with your new inheritance. Are you looking to cut debt, save for an event, or secure your retirement? Defining your priorities will help shape your strategy.

• Develop a savings and investment strategy. Once you have a clear understanding of your financial position and goals, consider how your inheritance could be allocated to support them. This may involve balancing shorter-term priorities, such as travel or education expenses, with longer-term objectives, such as retirement. Diversifying across different asset classes, including shares, fixed income, cash and exchange-traded funds (ETFs), may help manage risk and support long-term growth. Avoiding excessive exposure to a single investment or asset class may also help create a more resilient portfolio.

Common mistakes to avoid

People often think of an inheritance as unexpected money rather than part of a long-term financial plan. This can lead to people making decisions that feel rewarding in the short term but do little to improve long-term financial well-being. Common mistakes include making large lifestyle upgrades too quickly, leaving sums in cash in low interest accounts, ignoring tax implications and failing to consider diversification.

Don’t forget your superannuation and family trusts

Depending on individual circumstances, contributing some of your inheritance to superannuation may offer tax advantages, although contribution caps, eligibility requirements and tax outcomes may vary. Consider seeking financial advice to understand how super rules apply to your situation.

Other investment structures such as family trusts may also play a role in managing wealth. Depending on your circumstances, they may offer tax planning opportunities. Some people may also choose to use part of their inheritance to support charitable causes, including through donations to deductible gift recipient (DGR) organisations.

Turning a windfall into a legacy

An inheritance is about more than money. For many people, it represents the legacy of a loved one and the culmination of years of saving, investing and planning.

While every situation is different, understanding your goals, maintaining a diversified approach and focusing on long-term outcomes may help transform inherited wealth into lasting financial security.

Footnotes:

^{1. Productivity Commission, Wealth Transfers and Their Economic Effects (2021)}

^{Source: Vanguard}

^{Reproduced with permission of Vanguard Investments Australia Ltd}

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