Receiving a windfall and knowing what to do with it can cause us to experience a wide range of emotions. It can become overwhelming and stressful during the already tough time of losing a loved one.

Of course, the stress can vary depending on the circumstances leading up to the windfall, other family members involvement and reactions, how much of a surprise the windfall is and the size of the windfall. The complications and emotion are what differentiate this type of windfall from others such as a lotto win.

As with any windfall, depending on your lifestyle and your ability to manage it, the same amount can last different periods of time. Some people can spend in a week what others may take years to spend.

Given that these amounts are unusual and unlikely to be repeated it is important to make the most of them. It is also an added responsibility to honour and respect the wishes of the person who has made this inheritance possible and worked a lifetime to build it.

There are some sage words of advice to consider, particularly as the amounts involved get larger.

  • Understand your current finances and what is most important to you.
  • Buy yourself some time to think as there is no rush to act in most cases.
  • Talk to a professional and seek their assistance to understand the options including possible taxation or pension entitlement considerations.
  • Be selective about who you share the details with.
  • Review your own estate planning given the change in circumstances.

In simplistic terms the options are:

  • Spend it
  • Save it
  • Invest it
  • Gift it

Some common things that people consider with such windfalls:

  • Paying off home loan or other debts such as credit cards
    • Getting rid of debt can reduce stress now and in the future
    • Offsetting debt while you are considering the best course of action
  • Superannuation contributions
    • Making additional contributions
    • Being mindful of what the impacts will be on contribution limits or access should you need it soon
  • Investing in a range of assets including property and or shares for growth
    • This will vary depending on risk attitude and personal situation
    • Need to consider additional costs and risks that may apply
  • Support other members of the family
    • This can be with immediate needs or it can also be about setting up the legacy for the future that you want to pass to the next generation

One of the common items transferred as part of an inheritance is the family home. The good news is that there is no inheritance tax in Australia. At least for the moment.

The bad news is that there are situations where there may be Capital Gains Tax (CGT) liability if you are transferring the asset as part of a will. Again, as a broad guide there are provisions that you need to be aware of.

  • If you sell the property within 2 years of death you may not be subject to incurring CGT
  • If you live in the property as your main place of residence until you sell it you may not be subject to incurring CGT.

Choosing what to do will depend on your overall situation, your attitude to risk and current life stage. There is no one right answer.

Historical experience does suggest that when inheritances do pass, they get spent and the majority does not make it to the next generation. The size of estates, particularly where property is involved can be substantial. Families with very modest situations and limited awareness around finances can be dealing with some very large and complicated situations.

Again, the key tip is to consider where the amounts are sizeable, or you are facing unfamiliar territory.

  • Seek the assistance of a professional early
  • Ask a lot of questions until you get comfortable
  • Think carefully and respectfully before actioning
  • If you are going to reward yourself, reward small and save big

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication. Whilst all care has been taken in the preparation of this material, it is based on our understanding of current regulatory requirements and laws at the publication date. As these laws are subject to change you should talk to an authorised adviser for the most up-to-date information. No warranty is given in respect of the information provided and accordingly neither Alliance Wealth Pty Ltd not its related entities, employees or representatives accepts responsibility for any loss suffered by any person arising from reliance on this information.

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