The amount of money being passed between generations in the form of inheritance is significant.
Figures published by the Government reveal that around AUD $1.35 trillion has been inherited by people in Australia in the last 20 years. Meanwhile, law firm Solomon Hollett estimate that a further $4.3 trillion will be inherited between now and 2050.
Clearly, inheriting can bring you mixed emotions. On the one hand, receiving what could be a substantial sum of money could be a life-changing moment for you and your loved ones.
Set against that, however, is the fact that your bequest is likely the result of the death of a close relative, and will come at a time of great sadness for you and other members of your family.
An inheritance can often also come with significant responsibility for you and involve a great deal of decision-making.
The most obvious of these is what you actually do with the bequest you have received. But beyond that, there are other issues you may need to be mindful of when you receive an inheritance.
Read about five of these, and how you might want to approach them.
1. You’ll be making decisions at a time of emotional upheaval
The death of a relative, particularly someone you were close to, is going to be an emotional challenge.
Grief can have a detrimental effect on your cognitive processes. As a result, you could find it difficult to think clearly at such a time, which might well result in you making sudden, impulsive decisions that you may later regret.
It’s important to be aware of this so you are ready if it happens. You could even delay making key choices for a period. If there is a strict timescale on some decisions you have to make, you may want to seek expert guidance from a third party not directly involved with your family.
It’s also worth bearing in mind that other members of your family will be equally affected. So, try to temper your reaction to what you might feel are irrational decisions they may make.
2. You may need to consider issues within your family
It’s an unfortunate fact of life that inherited assets can often be the source of intra-family disagreement, which can last for a considerable period.
A report by Armstrong Legal estimates that up to half of wills in Australia are subject to challenge by family members.
Additionally, a study from the University of Queensland found that 74% of wills challenged in court resulted in the will being changed.
Managing the dynamics of your family in these circumstances can be awkward. You will need to balance the wishes of the deceased with your future relationships with other family members.
3. Using your inheritance in alignment with the values of the deceased
You could also face challenges when it comes to how you actually decide to use your inheritance.
Again, you might need to find a balance between the values and beliefs of the deceased and your own needs and long-term objectives.
You may want to earmark a portion of your legacy towards commemorating their life in some way. This could involve a donation to a charity you know they supported, or making a gift to a local organisation they were involved with.
4. How to manage inheriting important and valuable items
While most bequests are usually financial, you might also inherit other valuables, or specific items that had a special meaning to you and the deceased.
This may bring challenges from other family members who may have anticipated inheriting those items themselves.
Once again, you will need to manage a situation like this carefully, with due regard for your family dynamics, the wishes of the deceased, and your own preferences.
An important factor may be any responsibilities that come with the inheritance in question, and considering who has sufficient time to dedicate to it.
5. The long-term effect of your inheritance
Receiving an inheritance may well lead to significant changes to your life and lifestyle, particularly if you inherit a substantial sum of money.
In these circumstances, you will likely want to take some time to consider your long-term objectives and the resulting changes to your financial plans.
Rather than make any immediate decisions, it’s often sensible to take your time so that you are using your bequest effectively and in the most suitable way for both you and your family.
You might also want to think about your own legacy arrangements and how these may need to be amended in the light of your new wealth.
We would strongly recommend that you take expert financial advice before you make any decisions.
Get in touch
As you’ve read, it’s sensible to seek professional advice if you receive an inheritance. If you would like to discuss any of the issues you’ve read about in this article, please get in touch with us.
Please note
This article is for information only, it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO legislation, which is subject to change.