Receiving an inheritance can be life-changing. Whether it is money, shares, property or a combination of assets, an inheritance can create opportunities to improve your financial future, but deciding what to do next can be difficult.
For Australians in Brisbane and across Queensland, taking time to understand your options before making major financial decisions can help you turn an inheritance into a long-term financial strategy.
Here are seven important steps to consider before investing or spending an inheritance.
1. Take a pause before making major decisions
An inheritance often comes during an emotional period, particularly when it follows the loss of a family member. There is rarely a need to immediately invest, sell assets or make large purchases.
Taking some time to understand what you have received, what it is worth and what you want your money to achieve can help you make decisions based on your long-term goals rather than short-term emotions.
2. Understand exactly what you have inherited
An inheritance isn’t always a straightforward cash payment. You may receive property, shares, managed investments, superannuation interests or other assets.
Each type of asset can have different tax and financial considerations. Before changing ownership or selling an inherited asset, it is worth understanding its original cost, current value and how the asset fits into your broader financial position.
3. Review your existing debts
An inheritance may provide an opportunity to reduce or eliminate certain debts.
For example, paying down a home loan can reduce future interest costs and provide greater financial certainty. However, using the entire inheritance to pay off debt isn’t necessarily the only option. Comparing debt reduction with other potential uses of the money can help you determine what aligns with your financial goals.
4. Consider your tax position
Tax can be an important part of inheritance planning in Australia.
Selling inherited investments or property, changing investment structures or receiving certain types of income can have tax implications. Understanding these issues before taking action can help you avoid unexpected outcomes and identify legitimate opportunities for greater tax efficiency.
5. Think about the role of investing
If you don’t need the inheritance immediately, investing may allow the money to contribute towards longer-term goals such as retirement, purchasing property or building financial independence.
The right investment strategy depends on factors including your timeframe, existing assets, income, risk tolerance and objectives. An inheritance should generally be considered as part of your complete financial picture, not as a separate pool of money.
6. Revisit your estate plan
Receiving an inheritance can also be a good reason to review your own estate planning.
Your financial circumstances may have changed significantly, which could affect your will, beneficiaries, powers of attorney and the way you want your assets distributed in the future.
7. Get advice before making irreversible decisions
An inheritance can provide opportunities, but it can also introduce complex financial decisions. Professional financial advice can help you assess the different options and develop a strategy around your circumstances and goals.
At Pinnova Partners, we take a holistic approach to financial planning, helping clients with investment advice, tax efficiencies, estate planning, retirement planning and cash flow strategies. Our Brisbane office is located in East Brisbane, with additional offices across the Gold Coast, Noosa, Melbourne and Ballarat.
If you’ve recently received an inheritance and aren’t sure what to do next, the first step doesn’t have to be deciding where to invest it. It can simply be understanding your options and creating a plan for what comes next.