3 Simple options on what to do with an inheritance

What should you do with an inheritance?

An inheritance may represent an emotional, confusing and life changing experience in an individual’s life. Often the recipients of an inheritance may be left overwhelmed, wondering what to do with their newfound wealth. Should they pay off debt? Contribute to superannuation? Or maybe spend it on a holiday? We have provided you with some options that may help assist you in making this tough decision just that little bit easier.

1. Pay off your debts

Why use your inheritance to pay off existing debts?

It is a great way to reduce your current financial stress so you can focus on building wealth in the future.

Often short-term debts such as credit cards and personal loans charge higher interest rates when compared to the interest earned on holding the inheritance in a high interest savings account.

Which debts should I pay off first?

When determining which debts to pay off, you should firstly look to reduce your non-deductible debt whilst prioritising those debts with the highest interest rates first.

Typical examples of non-deductible debts may include home loans, car loans and credit cards.

2. Make voluntary contributions into superannuation

Why should I contribute my inheritance to superannuation?

It may provide you with the opportunity to take advantage of a tax effective structure that may otherwise not be available to you.

Investment earnings are taxed inside superannuation at a rate of 15%

How can I contribute voluntary contributions to superannuation?

Concessional contributions:

  • These are pre-taxed contributions made to superannuation that are taxed at a rate of 15% inside the fund.
  • Concessional contributions can be made via employer contributions, salary sacrificing and voluntary contributions.
  • The current cap for concessional contributions is $25,000 per annum.

Non concessional contributions:

  • These are after tax contributions made to superannuation, the non-concessional contribution is not taxed on entry to the superannuation fund.
  • The current non concessional contribution cap is $100,000 per annum, however a 3 year bring forward rule may apply providing investors with the opportunity to contribute a maximum of $300,000  to their superannuation within one year.

Please refer to the ATO Website for all the latest contribution cap information.

3. Invest your inheritance outside of superannuation

Why should I invest my inheritance outside of superannuation?

Although superannuation provides substantial tax benefits, it may not be accessible until you have reached your preservation age (between 55 & 60 depending on your date of birth).

  • Investing in another structure, such as in your personal name, trust or company may provide you with increased flexibility and accessibility to access your inheritance funds.

What investments should be purchased with my inheritance?

Ideally, your inheritance should be invested in line with your tolerance to risk and should be diversified within a range of asset classes including cash, fixed interest, shares and property.

If you would like a further discussion on what to do with your inheritance, please contact one of our Financial Specialists, complete your details below and we’ll be in touch or give us a call on 03 9835 8200.

The information provided in this blog is general in nature. It has been prepared without taking into account any person’s individual objectives, financial situation or needs.
Before acting on any information in this blog, you should consider its appropriateness to you, having regard to your objectives, financial situation and needs or seek professional advice from a financial advisor.

About the Author
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Trent Goodey , Melbourne
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