Inheritances are not only significant financial payouts but also markers of new responsibilities and life choices. For the next generation of wealthy Australians, receiving a large inheritance comes with the weight of legacy and the anticipation of using wealth meaningfully. This is not just about what to buy, but about handling assets in a way that ensures your financial health, well-being, and a positive contribution to your community and the world at large. It is about longevity, resilience, and wisdom.
In this guide, we will walk through key steps in managing your recent inheritance, including investing wisely, tax considerations, estate planning, and giving back to the community. We will provide actionable advice that takes advantage of opportunities unique to the Australian financial landscape.
Assessing the Inheritance: Getting a Financial Overview
The first step is to understand the nature of your inheritance. Is it in the form of financial assets, real estate, a family business, or a combination of different asset classes? Take stock of what you have and get a clear picture of its value. This may involve working with an estate lawyer, financial planner, or tax adviser to assess and appraise the assets.
- Real Estate: If you’ve inherited property, determine its market value and consider the ongoing costs of maintenance, rates, and insurance.
- Investments: Stocks, bonds, and other securities require you to review and potentially restructure your portfolio to align with your financial goals.
- Superannuation: Superannuation benefits may be passed as a lump sum or income stream, and the choices can have different tax implications.
Familiarise yourself with any potential tax obligations and how you could potentially minimise these.
Investment Strategy: Growing Your Inheritance
A sound investment strategy can grow your inheritance sustainably. Diversify your investments across asset classes and consider the long-term impact of your financial decisions.
- High-yield Savings – Consider stashing a portion of your inheritance in high-yield savings accounts, offset accounts, or term deposits to ensure liquidity and a buffer against unforeseen expenses or a market downturn.
- Managed Funds and ETFs – Investing in managed funds or exchange-traded funds (ETFs) can offer diversification and professional management.
- Real Estate Investment – Real estate can be a good long-term investment, especially in historically strong markets. However, it’s essential to conduct thorough research before making any property purchases.
- Financial Adviser – A financial adviser can provide personalised investment advice tailored to your financial goals, risk tolerance, and time horizon.
Wealth Protection and Risk Management
Protecting your wealth is as important as growing it. Evaluate your risk tolerance and consider appropriate insurance policies to safeguard your assets from unforeseen events.
- Life and Health Insurance – Life and critical illness insurance can provide a safety net for you and your family.
- Income Protection – This type of insurance can replace a portion of your income should you become unable to work due to illness or injury and can be especially beneficial if your job income is a significant portion of your wealth.
- Will, Trusts, and Estate Planning – Ensure your own affairs are in order by creating a will and possibly setting up trusts, which can help minimise taxes and/or control the distribution of your assets in the future.
Maximising Your Superannuation and Retirement Assets
Your inheritance can have significant implications for your superannuation and retirement planning, including the cap on non-concessional contributions and other rules.
- Making Additional Contributions – Consider making additional contributions to your superannuation to benefit from tax advantages and ensure a comfortable retirement.
- Pension and Annuity Options – Explore the various pension and annuity options to create a regular income stream in retirement.
- Self-Managed Superannuation Funds (SMSFs) – For more control over your retirement savings, an SMSF can be a viable option, but they also come with increased responsibilities and costs.
Minimising Tax Liabilities
A big inheritance can also mean a big tax bill if not handled properly. Regularly review your tax obligations and optimise your financial strategies to minimise taxes.
- Capital Gains Tax (CGT) – When selling inherited assets, be aware of potential CGT. Consider offsets and tax-free thresholds to minimise the tax liability.
- Deductions and Offsets – Explore all possible deductions and offsets, from investment-related expenses to charitable contributions, to reduce your taxable income.
- Tax Planning – Engage with a tax professional to help structure your affairs in the most tax-efficient manner possible, keeping in mind that laws and regulations constantly evolve.
Philanthropy and the Legacy of Giving
An important aspect of handling a large inheritance is the opportunity to give back. Philanthropy can be a powerful way to leave a positive legacy and engage with the community.
- Establishing a Family Foundation – Consider setting up a family foundation to coordinate charitable giving and support causes that have personal or familial significance.
- Donor-Advised Funds – A donor-advised fund allows you to make a charitable contribution, receive an immediate tax benefit, and then recommend grants from the fund over time.
- Endowment Funds or Scholarships – Endowments can be a lasting legacy, supporting educational institutions, religious organisations, and other entities in perpetuity.
Lifestyle and Personal Choices
Finally, remember that wealth is a tool to enhance your life, not a goal in and of itself. Make conscious choices that align with your values and purpose.
- Spending Wisely – Resist the urge to splurge and think carefully about your purchases.
- Continuing Education – Consider investing in your personal and professional development, as knowledge can be a valuable asset.
- Legal and Financial Education – Mastery over your financial and legal affairs can give you more control over your wealth and future, and it’s well worth the investment.
- Health and Well-being – Investing in your health and well-being is an investment in your quality of life. Make time for regular exercise, nutritious eating, and relaxation.
Receiving a large inheritance is a significant event that can entail complex decision-making. By following these guidelines, newly affluent Australians can manage their wealth with prudence, purpose, and an eye towards long-term prosperity. Remember that you don’t have to tackle this alone – a team of professionals can help guide your decisions and ensure your inheritance is managed with care and responsibility.
Take your time in making these crucial choices. Wealth, after all, is a marathon, not a sprint. It’s about setting off on a path that creates a legacy of which you can be proud for generations to come.
If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.