What to Do When You Receive an Inheritance: A Comprehensive 7-Step Guide

Receiving an inheritance can be a life-changing moment, bringing both financial opportunity and emotional complexity. It’s a time to reflect, plan, and make informed decisions that align with your long-term goals. Whether you’ve inherited cash, property, shares, or other assets, taking a thoughtful approach can help you maximise the benefits while avoiding common pitfalls. 

At LIFE Financial Planners, we guide our clients here in Perth through these critical moments, ensuring their inheritance is managed wisely to create lasting financial security. Here’s our step-by-step guide on what to do when you receive an inheritance.

1. Take a Step Back Before Making Decisions

The first and most important step is to pause. Inheritances often come after the loss of a loved one, making it an emotional time. It can be tempting to make big decisions quickly—paying off debts, investing in property, or even making major purchases—but it’s essential to take a moment to assess your financial situation before taking action. 

Instead of rushing into decisions, consider setting the funds aside in a high-interest savings account while you explore your options. A well-thought-out plan will help ensure that your inheritance contributes positively to your financial future. 

Depending on the complexity of the estate, it can take six months to a year (or longer) before assets are fully distributed. If there is a legal process involved, such as probate, this can extend the timeline.

A helpful approach is to think of your inheritance in four categories:

• Immediate needs: Covering expenses or obligations that require urgent attention.
• Short-term goals: Planning for purchases or financial moves within the next 1–5 years.
• Long-term growth: Investing for future financial security and wealth-building.
• Legacy & philanthropy: Ensuring your wealth aligns with your values, whether that means supporting family or charitable giving.

2. Understand the Nature of Your Inheritance

Not all inheritances are received in cash. Inheritances come in many forms, and each type of asset has different financial implications: 

• Cash: The simplest form of inheritance, but still requires careful planning.
• Property: You may need to decide whether to keep, sell, or rent it out. There could also be tax implications.
• Shares and Investments: Understanding market risks, potential capital gains tax, and diversification strategies is crucial.
• Superannuation Benefits: If you’re a beneficiary of superannuation, specific tax rules may apply.
• Business or Family Assets: Inheriting a business or family asset can come with responsibilities that need careful consideration.

Each type of asset carries different tax, legal, and financial planning considerations, making it essential to seek guidance before making major decisions.

3. Review Your Debts and Financial Priorities

It’s natural to consider using an inheritance to clear debts, but it’s not always the best financial move. While high-interest debts (such as credit cards and personal loans) should often be paid off first, low-interest debts—such as home loans—may require more strategic thinking.

For example, if your mortgage interest rate is low, investing your inheritance elsewhere may generate a higher return than simply paying off the loan. The key is understanding how your financial goals align with different strategies.

4. How Could Your Inheritance Affect Your Tax?

Unlike some other countries, Australia does not have an inheritance tax. However, certain assets can still create tax implications, particularly when they are sold or generate income.

Key tax considerations include:

• Capital Gains Tax (CGT): If you inherit shares, property (other than the deceased’s main residence), or other investments and later sell them, CGT may apply. You may be eligible for concessions, such as the CGT exemption on a deceased’s main residence if sold within two years.
• Superannuation death benefits tax: If you inherit superannuation as a non-dependent, a tax of up to 17% may apply to the taxable component of the benefit.
• Tax on investment income: If your inheritance generates interest, dividends, or rental income, this will be added to your taxable income for the year.

Rather than leaving your inheritance in a low-interest bank account, consider putting it to work through strategic investments. Diversification is key. Investing across different asset classes can help manage risk while growing your wealth over time. 

Some options include:

• Managed funds and shares: A way to generate returns while spreading risk.
• Property investment: If appropriate, investing in property could provide rental income and capital appreciation.
• Superannuation contributions: A tax-efficient way to boost your retirement savings.

An investment strategy should be built around your financial goals, time horizon, and risk tolerance.

5. Should You Invest Your Inheritance?

Rather than leaving your inheritance in a low-interest bank account, investing it wisely can provide long-term financial growth. Key investment options include:

• Managed funds & shares: Diversifying across markets can provide strong returns over time.
• Property investment: Rental properties can generate passive income, but it’s important to consider the costs involved.
• Superannuation contributions: Making additional contributions to your super can provide tax advantages and strengthen your retirement savings.

Each option comes with benefits and risks, so understanding your risk tolerance and financial goals is crucial before investing.

6. Superannuation Contributions 

Superannuation is one of the most tax-effective ways to grow your wealth. If you have received a large sum of money, contributing some of it to Super could provide long-term benefits. 

Key considerations:

• Concessional contributions (before tax) are capped at $27,500 per year (including employer contributions). 
• Non-concessional contributions (after tax) have a higher cap but come with eligibility criteria. 
• Investment earnings inside Super are taxed at just 15%, compared to personal investment income, which is taxed at your marginal rate. 

Before making contributions, ensure you’re aware of the annual contribution caps to avoid excess tax penalties.

7. Protecting Your Wealth: Reviewing Your Own Estate Plan

Once you’ve decided how to manage your inheritance, it’s important to review your own estate plan to ensure your assets are protected and passed on according to your wishes.

Key steps include:

• Update your will to reflect new assets.
• Review your beneficiaries on superannuation and life insurance policies.
• Consider setting up a trust to protect assets for future generations

The Bottom Line: Seek Professional Advice

Managing an inheritance can be complex, and the right financial decisions depend on your unique situation, tax considerations, and long-term goals.

At LIFE Financial Planners, we specialise in intergenerational wealth transfer, helping you make smart financial choices that protect and grow your inheritance. Whether you need investment guidance, tax planning, estate structuring, or debt management strategies, our team is here to help.

Ready to make the most of your inheritance? Contact our West Perth team at LIFE Financial Planners today to start planning for your future.