Inheritance Financial Advice: How To Make The Most Of Your Inheritance Money

Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like. – Will Rogers

An inheritance can be a once-in-a-lifetime opportunity, but it comes with emotional weight and financial complexity. Without a clear plan, it’s alarmingly easy for that money to disappear faster than expected.

This article explores how to make the most of your inheritance, avoid common pitfalls, and plan for the future with expert financial advice.

Why do people blow their inheritance?

Image: Pexels

Research shows that up to 70% of families lose their wealth by the second generation, and 90% by the third. Even more concerning, many beneficiaries run through their inheritance within just a few years.

One common reason for this is lifestyle inflation—the tendency to upgrade things like cars, holidays, and renovations without considering the long-term impact on finances. Others may fall victim to emotional spending, making impulsive decisions in moments of grief or stress. 

Some beneficiaries give too much of their inheritance to friends or family members, without safeguarding their own financial future.

Another significant pitfall is making bad investment choices, such as chasing quick returns or unregulated schemes without seeking professional financial advice. These mistakes are often compounded by overlooking tax implications, particularly when it comes to capital gains tax or the complexities of superannuation contributions.

Finally, many people simply aren’t prepared to manage a large windfall, lacking the financial knowledge and experience to make informed decisions. As one financial psychologist said: 

Receiving a windfall without preparation is like putting someone with no training behind the wheel of a race car.

It doesn’t have to be this way. Proper planning can transform an inheritance into a platform for long-term financial security, opportunity, and even legacy.

Receiving inheritance: first, breathe! 

When an inheritance comes your way, it’s natural to feel the urge to spend or act quickly. But often, the best first step is to pause and take some time to breathe.

While it’s easy to feel compelled to make immediate decisions, this period of reflection allows you to process the emotional side of receiving the inheritance. Only after you’ve taken the time to reflect on your priorities and goals can you truly understand what you want the inheritance money to do for you.

What to do with inheritance money in Australia

Image: Pexels

There’s no one-size-fits-all approach to managing an inheritance. Managing inheritance money requires careful thought and planning based on your financial position, life stage, and personal goals.

However, here are some common uses people explore: 

• Paying down debt: Credit cards, personal loans, or the mortgage.
• Creating a financial buffer: Building an emergency fund or rainy-day reserve.
• Topping up superannuation: Especially for those in their 40s and 50s.
• Helping loved ones: With education, housing, medical bills, or personal support, thoughtfully.
• Investing for the future: Through shares, managed funds, or tax-effective tools like investment bonds, you can potentially accelerate wealth generation.
• Buying property: Either as an investment with the possibility of rental income, or for the next phase of life.
• Taking time: For travel, study, or simply to breathe and reflect.
• Investing in professional advice: Speaking with a qualified financial adviser can help you clarify goals, explore options, and avoid costly mistakes.

It’s not about ticking all the boxes but finding what aligns with your financial situation, values, and goals.

Can I put inheritance into superannuation?

One common question is whether you can put inheritance into superannuation. While the answer isn’t straightforward, making non-concessional contributions to your super fund using inheritance money is possible. 

Specific contribution limits and tax implications must be considered. An inheritance involving a super death benefit might also have different income tax obligations, so it’s wise to consult a financial adviser before making any decisions.

Real-world examples

Image: Pexels

To illustrate how different people use their inheritance money, here are a few real-world scenarios we’ve witnessed over the years: 

• Sarah, 38, used her inheritance to pay off a car loan and set aside a home deposit. She also took a short career break to retrain, realigning her financial and career goals.
• In their early 40s, Mark and Ella added to their superannuation, set up an investment account, and gave a small amount to help their daughter start a business. This balance of personal, professional, and investment goals helped them align their wealth with their values.
• Vince, aged 52, chose to reduce his mortgage and invested the remaining inheritance for long-term passive income, ensuring his wealth generation was on track for the future.

Each path was different. The key was that each made decisions that were aligned with their life stage, goals, and financial comfort.

An inheritance isn’t just a financial windfall—it’s a unique opportunity

An inheritance is more than just a financial windfall; it’s a unique opportunity to change your life. However, with the possibility of making poor decisions, whether by spending too quickly or failing to consider tax law and capital gains implications, it’s essential to handle it wisely.

With careful thought and planning, you can use your inheritance to secure your financial future through investing, paying off debt, or boosting your retirement savings. If you’re unsure where to start or need guidance, seeking professional advice from a financial adviser can help you make well-informed decisions that align with your goals.

At Elliot Watson Financial Planning, we can provide expert advice on how to manage your inheritance money. Whether you’re looking to reduce capital gains exposure, understand tax implications, or create an investment strategy that aligns with your goals, our team can help you maximise your financial windfall. 

Disclaimer

The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position, and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author.

Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

The information (including taxation) in this article does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.

Article by Vikas Modgil – Senior Financial Adviser