How to Manage Inheritance Money in Australia

The weeks immediately after receiving an inheritance are the most important - and the most emotionally difficult - for making sound financial decisions. Slowing down is the most valuable first step.

• Do nothing immediately: there is no financial urgency to deploy an inheritance within days or weeks; placing the funds in a high-interest savings account while you process the situation and plan carefully is the correct first move
• Establish a holding account: if the inheritance arrives as cash (from the estate's bank account), deposit it into a dedicated account separate from your everyday spending - this prevents it from being absorbed into lifestyle spending before you have a plan
• Understand what you have inherited: inheritance can include cash, shares, superannuation (death benefit), property, business interests, personal effects and digital assets - each has different tax treatment and different planning requirements
• Superannuation death benefits: super does not automatically form part of the estate; it is paid by the trustee according to the deceased's binding death benefit nomination - if you receive super as a death benefit lump sum as a non-dependant (e.g. adult child), the taxable component is subject to 17% death benefits tax before you receive it
• Engage professionals before major decisions: a financial adviser and accountant experienced in estate matters should be involved before any significant deployment of inheritance capital - the cost of advice is trivial relative to the complexity and irreversibility of major financial decisions
• Watch for predatory approaches: an inheritance is a well-known trigger for unsolicited financial advice, investment schemes and sales pressure from people who learn you have received money - ASIC's Financial Advisers Register verification is essential before engaging any new adviser
• Inform your existing adviser: if you already work with a licensed financial adviser, inform them of the inheritance immediately - they can integrate it into your overall financial plan and ensure it complements rather than disrupts existing strategies

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Australia has no inheritance tax or estate duty - but the assets you inherit can generate tax obligations when you sell or derive income from them. Understanding these rules prevents an unwelcome surprise.

• No inheritance tax: Australia abolished estate duties and inheritance taxes at the federal level in 1979 and at the state level progressively through the 1980s - there is no tax simply on receiving an inheritance, regardless of amount
• CGT on inherited shares and property: when you SELL an inherited asset, capital gains tax applies; your cost base for the inherited asset depends on when the deceased acquired it
• Pre-CGT assets (acquired before 20 September 1985): if the deceased acquired the asset before 20 September 1985, you inherit it with a cost base equal to its market value at the date of the deceased's death - any gain from that value is subject to CGT only when you sell; the pre-CGT history is wiped
• Post-CGT assets (acquired on or after 20 September 1985): your cost base is the deceased's original cost base (not the market value at death) - this means a significant gain may have accumulated and will be realised when you sell; if the asset was owned for more than 12 months (from the deceased's original purchase date), the 50% CGT discount applies
• The main residence exemption and inherited homes: if you inherit a home that was the deceased's main residence, a specific exemption applies - if you sell within 2 years of the deceased's death, no CGT applies regardless of price change; if you sell after 2 years, the CGT treatment depends on how the property was used
• Inherited shares from a deceased estate: the legal personal representative (executor) transfers shares to beneficiaries; the beneficiary's cost base is either the deceased's original cost base (post-CGT shares) or market value at death (pre-CGT shares); receiving the shares is NOT a taxable event - only a future sale is
• Income from inherited assets: rent from an inherited investment property, dividends from inherited shares and interest from inherited accounts are assessable income in your hands from the date you become the owner - you will need to include this in your tax return

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An inheritance can be used to accelerate superannuation accumulation - but the annual and lifetime caps must be carefully observed. Done correctly, an inheritance can dramatically improve your retirement position.

• Non-concessional contributions (NCC): you can contribute up to $120,000 of after-tax money per year into super, or use the bring-forward rule to contribute up to $360,000 in a single year (subject to your total super balance and age)
• NCC bring-forward: if your total super balance was below $1.66M at 30 June 2024 and you are under age 75, you can trigger the bring-forward and contribute up to $360,000 in one year (or $240,000 for those with balances between $1.66M and $1.78M); above $1.9M no NCCs are permitted
• Concessional contributions: personally deductible contributions (for self-employed or those salary sacrificing) count toward the $30,000 concessional cap - a lump sum personal deductible contribution funded by inheritance is taxed at 15% inside super instead of your marginal rate; still requires a Notice of Intent
• Carry-forward unused concessional contributions: if your super balance was below $500,000 at 30 June 2024, you can contribute up to ~$147,000 of unused concessional caps in a single year - this is a particularly powerful use of inheritance funds for people who have underfunded super
• CGT small business retirement exemption contribution: if the inheritance includes a small business interest that is sold, the CGT retirement exemption (up to $500,000 lifetime) can be contributed to super outside the normal contribution caps - this is a specific rule requiring professional advice to execute correctly
• Death benefit contributions: if you receive a super death benefit lump sum, you CANNOT re-contribute it to your own super under any special provision; it is treated as an ordinary non-concessional contribution subject to the NCC cap - but you do have 12 months from the date of receiving the benefit to contribute it within the NCC framework if you are eligible
• Super contribution timing: super contributions must be received by the fund before 30 June to count in the current financial year - plan timing of large NCC contributions to ensure the fund processes them before year-end; allow at least 5 business days for clearance

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Receiving an inheritance changes your financial position and should trigger a review of your own estate planning documents. What was adequate before may no longer reflect your wishes.

• Update your will: an inheritance increases your asset base and may require updating how your own estate is distributed - review beneficiaries, executors and specific bequests to reflect your new financial position
• Review your superannuation death benefit nominations: if your super balance increased through non-concessional contributions funded by the inheritance, review and update your BDBN; check whether the nomination has lapsed (most lapse after 3 years) and renew if necessary
• Enduring power of attorney: if the inheritance process revealed gaps in the deceased's estate planning (e.g. no POA, assets frozen while waiting for probate), use this experience as motivation to ensure your own POA and enduring guardianship are in order before you need them
• Insurance review: with a larger asset base, your insurance needs may change - if you have paid off a mortgage with inheritance funds, your life insurance requirement (which was partly covering the mortgage) may be lower; review with your adviser
• Testamentary trust consideration: if you are distributing your estate to beneficiaries who include minor children or financially vulnerable individuals, a testamentary trust in your will provides asset protection and tax advantages that a direct bequest does not - the inheritance experience may have given you direct insight into whether a testamentary trust would have benefited the deceased's estate
• Blended family and contested estate risk: if the inheritance came via a contested will or involved family conflict, you now have direct experience of how estate disputes arise - review your own estate documents specifically for provisions that reduce the risk of similar disputes (clear beneficiary designations, mutual wills with your partner, documented intentions for specific assets)
• Review beneficiary nominations across all financial products: life insurance, TPD policies and super accounts all have separate beneficiary nominations that operate independently of your will - after a financial windfall, confirming all nominations are current and reflect your wishes is essential

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After the emotional dust has settled and professional advice is obtained, deploying inherited capital wisely is about integrating it into your overall financial plan - not starting a new one.

• Step 1 - Clear high-cost debt first: credit cards, personal loans and car loans at high interest rates should be eliminated before any investment decision - a guaranteed 14–20% return on debt repayment beats most investments
• Step 2 - Build or replenish the emergency fund: if your emergency fund was depleted or never established, fund 3–6 months of living expenses in a high-interest savings account or mortgage offset
• Step 3 - Consider the mortgage: at a 5.5–6.0% variable rate, paying down the owner-occupied mortgage is a guaranteed tax-free return; weigh this against expected investment returns; a partial mortgage paydown and partial investment allocation is a reasonable middle path
• Step 4 - Super contributions within caps: maximise NCC bring-forward and/or carry-forward concessional contributions - the tax efficiency of super cannot be replicated by any other structure for most Australians
• Step 5 - Invest remaining funds in a diversified portfolio: VAS + VGS or a diversified multi-asset ETF (DHHF, VDHG) via a low-cost broker; dollar cost averaging the remaining capital over 6–12 months reduces timing risk without sacrificing long-term returns
• Avoid common inheritance mistakes: making large, concentrated investment decisions quickly (single property, single stock, single business); lending money to family members without proper documentation; over-consuming (significant lifestyle upgrade that creates ongoing fixed costs); and ignoring the inheritance and leaving it in a low-return bank account for years
• Consider the emotional dimension: inherited money often carries psychological weight - some people feel guilt about spending it, others feel pressure to honour the deceased's wishes; recognising these feelings and discussing them with your adviser (or a counsellor) leads to better financial decisions

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