How to handle an inheritance wisely

Receiving an inheritance, regardless of its size, can be one of life's most emotionally charged experiences. It often comes at a time of grief and stress, making it challenging for us to navigate financial decisions.

It is a challenge likely to be experienced by more Australians as part of an intergenerational wealth transfer that is expected to result in around $3.5 trillion being passed to the heirs of older citizens by 2050.

It's a monumental movement of wealth that will shape how people spend, save and invest.

Pause before you act

Your first thought should be: don't rush. When a financial windfall lands, many experts agree that doing nothing immediately is often the best first step.

People who wait longer and give themselves space to process the emotions often make clearer, more informed decisions later, setting themselves up for better long-term outcomes.

Of course, it can be instinctive to want to do the exact opposite. A beneficiary of a Will may feel the urge to purchase an item they've been unable to afford previously. Or they may be tempted by bigger ticket purchases that were previously out of their reach.

Impulsive spending when stressed or at a time of loss, can lead to quick purchases on depreciating assets like luxury vehicles or overseas trips. This may erode the principal and the long-term benefit of an inheritance.

Likewise, a desire to make the money "work hard" straight away can also backfire if choices are rushed or not aligned to personal goals or risk tolerances.

The cost of such a decision could include losing money on a high-risk investment or foregoing potential returns by opting for an investment too conservative for your risk profile.

Finding a temporary home for your funds

A practical interim step can be placing an inheritance in a secure, income-bearing environment while you consider your next move.

So, what are the options?

For many, a simple savings account paying conservative but reliable interest on the lump sum inheritance can be a logical spot to park their new cash.

For other Aussies, they may prefer a term deposit, locking up their funds for a set period of time in exchange for a slightly higher rate - though that comes with less flexibility.

Beyond these traditional cash options, fixed income-style investments - such as government bonds or professionally managed funds - can provide regular income and help preserve capital.

Accessing these investments directly has often been complex or expensive for individual investors. However, in recent years, technology has made access to these types of investments simpler, allowing the everyday investor to participate without needing large minimum balances or complex structures.

Make a plan for the long term

Once an appropriate safe harbour is established for the funds, the next stage is to plan how the inheritance can support your broader financial life.

That might involve strategies such as paying down debt, building an investment portfolio, making super contributions or even setting aside money for future generations - but it depends entirely on personal goals, time frames and circumstances.

If needed, consider engaging a qualified financial adviser or discuss your situation with trusted family or friends who can provide perspective.

Take your time

Again, it's key not to rush these decisions. An inheritance is a gift that can improve financial security and allow people to reach important goals.

By slowing down decisions and giving yourself time to reflect, recipients can put themselves in a stronger position to make choices that strengthen future security - rather than rushing into riches that fade too fast.

Get stories like this in our newsletters.