An inheritance rarely feels like good news at first. It usually arrives with a death, often a parent, and the money and the grief come tangled together. You might feel grateful, guilty, overwhelmed, or just numb, often all at the same time. That’s normal, and it’s worth acknowledging the emotion before anyone starts talking about what to do with the money.
Most people fall into one of two camps. Some freeze and leave it sitting in the bank for a year, afraid of getting it wrong and not honouring their loved one. Others move too fast, because doing anying feels better than sitting with the loss. Neither is a failing, but both can quietly cost you, and a bit of breathing room usually leads to a better outcome.
Give yourself room to think
Grief makes big decisions more difficult and there is rarely a need to rush. Put the money in a high interest savings account while you work out what matters. The estate often takes months to finalise anyway. Let the shock settle and resist any pressure from others, or from yourself, to commit it quickly. A calm, considered decision in six months almost always beats a rushed one.
What the money means depends on where you are in life
An inheritance can land differently depending on your stage of life. The same amount can be a foundation, a course correction, or an income question.
Receiving an inheritance in your 30s
An inheritance is often a deposit, a way to clear high-interest debt, or the start of long-term investing. The temptation is to rush into property, but the better question is what gives you the most freedom over the next decade. A smaller mortgage and some money invested early can matter more than stretching for a bigger house you feel pressured to buy.
Receiving an inheritance in your 40s and 50s
The money usually meets competing priorities at once. Mortgage, super, kids’ education, maybe helping your kids into a home. This is the stage where an inheritance can quietly reshape your retirement if you use it well, or disappear into everyday spending if you don’t. It’s worth taking time to thoughtfully consider what you want your future to look like.
Receiving an inheritance in or near retirement
The questions change again. Now it’s about income, tax, and what the money does to your overall position, including the age pension if that’s part of your picture. It may also be about passing it on for future generations. The focus shifts from building to structuring.
All different situations, but the same principle applies. Decide what you want the money to do for you, before you decide where it goes.
The tax questions people always ask
Australia doesn’t have an inheritance tax, so you generally won’t pay tax simply for receiving money or assets from an estate. That surprises people, and it’s a relief to hear. But it doesn’t mean tax never comes into it. Once assets are yours, the normal rules apply. Sell an inherited property or shares down the track and capital gains tax can come into play. Move money into super and contribution caps and your age matter. None of it is a reason to worry, just a reason to get the specifics checked rather than assume.
A few sensible first moves
When you’re ready to act, these are the moves that tend to matter most. You don’t need to do them all at once.
Clear the expensive debt first
If you’re carrying high-interest debt such as a credit card, a personal loan or a car loan, paying it off is one of the most reliable things you can do with a windfall. The return is guaranteed in that you save every dollar of interest, and there’s none of the uncertainty that comes with investing.
Top up your safety net
If you don’t have a cash buffer for emergencies, this is the time to build one. A few months of expenses set aside means a job loss, a health scare or a big repair, doesn’t knock you off course.
Resist the urge to upgrade everything
A lump sum has a way of quietly lifting your spending. A nicer car, a bigger renovation, a run of small “we can afford it now” moments. Enjoying some of what you’ve been left is fine, and can be a real way to honour the person who left it. Just spend some on purpose and protect the rest on purpose, rather than letting it drift away unnoticed.
Look at your whole position, not just the inheritance
It’s common to ring-fence an inheritance and ask what to do with that money on its own. You’ll usually make a better call by looking at your whole financial position – mortgage, super, investments and goals – and asking where any spare money does the most work. Often the answer is something ordinary, like paying down the mortgage or topping up super, rather than giving the inheritance its own separate job.
Get advice before the big, hard-to-reverse decisions
For a modest sum, you can probably manage it yourself. For a larger inheritance, or one where property, super or tax are involved, get proper advice from a finanical adviser before you commit. The cost of good advice is small next to a decision you can’t take back.
When the inheritance isn’t cash
Not every inheritance arrives as money in an account. Often it’s a house or super, and both come with their own decisions.
If you inherit a property, the question is whether to keep it, rent it out, or sell. There’s usually no rush, but there is a tax angle. You don’t pay capital gains tax when you inherit a home, but you may when you sell. How long you hold it and whether it was a main residence both affect the outcome. Worth checking before you decide, not after.
If you inherit super, it doesn’t work like the rest of the estate. It’s paid as a death benefit, and depending on your relationship to the person who died, part of it can be taxed before it reaches you. For an adult child inheriting a parent’s super, that’s a common surprise. It’s worth understanding how the payment is structured rather than assuming it all comes through untouched.
Don’t forget your estate plan
A decent inheritance changes your financial position, which means the estate plan you had before may now be out of date. Your will, your super nominations and estate plan were built around the old numbers. It’s worth revisiting your estate plan once the dust settles, both so your affairs reflect where you are now, and so the money you’ve been given is passed on well in turn.
A sensible next step
An inheritance is often the last thing someone gives you, and there’s a quiet responsibility in using it well. That doesn’t mean getting it perfect. It means making considered choices, rather than rushed or fearful ones.
If you’ve recently inherited and you’re not sure what to do next, our financial advisers in Sydney can help you think it through calmly, alongside our in-house accountants for the tax side. Book a complimentary strategy session with Financial Spectrum whenever you’re ready. We’re privately owned, fee for service, and the advice is built around your situation and nobody else’s. We back our work with a full money-back guarantee, because we’re confident in what we do for our clients.
Frequently asked questions
Do you pay tax on an inheritance in Australia?
Generally no. Australia doesn’t have an inheritance or estate tax, so you usually won’t pay tax just for receiving money or assets from an estate. Tax can still apply later, for example capital gains tax when you sell an inherited property or shares, so it’s worth getting the details checked.
What should I do with an inheritance straight away?
Often the best first move is to do very little. Park the money somewhere safe, let the estate be finalised, and give yourself a few months before making big decisions. Grief and rushed financial choices don’t mix well, and there’s rarely any real urgency.
Should I pay off my mortgage with an inheritance?
It’s a common and sensible option, though not automatically the best one. Clearing high-interest debt is usually worthwhile, but whether to put a lump sum against your mortgage, into super, or into investments depends on your age, goals and tax position. It’s a good question to work through with an adviser.
Do I pay capital gains tax on an inherited house?
Not when you inherit it, but potentially when you sell. Whether capital gains tax applies, and how much, depends on things like when the property was bought, whether it was a main residence, and how long you hold it. This is worth getting checked before you sell rather than after.
Can I put an inheritance into super?
Often yes, but contribution caps and your age affect how much and how. Moving an inheritance into super can be tax-effective for the right person, though it needs to fit the rules and your broader plan. It’s worth advice before making a large contribution.
Rebecca is passionate about promoting the positive impact of quality financial advice on personal wellbeing. Read her full bio here.
