How you can be worse off after receiving an inheritance – and how to avoid it

Inheriting money or assets can be life-changing. It can help you to purchase property, reduce debt or set you up for a secure financial future.

But inheritance money doesn’t always lead to better long-term outcomes. Why? Without careful planning, the good intentions behind an inheritance can be undone by poor choices, overlooked tax implications or emotional decision-making.

The risk of relying on an inheritance

An inheritance is never a guarantee. Circumstances can change, wealth may be eroded over time or life events may alter what is eventually passed on. Building your financial future on the assumption of inheriting money can leave you vulnerable if it doesn’t materialise as expected.

Instead, view an inheritance as an opportunity if and when it happens, not as the foundation of your financial plan.

Emotional decisions at the wrong time

One of the most challenging aspects of inheritance is that it usually comes during a time of grief. It is natural to want to do something meaningful with the money or to make quick decisions, but this is often when people are most vulnerable to mistakes. Some rush into spending on luxury goods or holidays, while others invest hastily in high-risk opportunities. These decisions may provide short-term comfort but often undermine the long-term impact of the inheritance.

On the flip side, many people do nothing because they feel overwhelmed. Leaving inheritance money idle in a bank account may feel safe, but in the long run, it fails to keep pace with inflation and misses the opportunity to grow.

Understanding the tax landscape

It’s a common misconception that inheritance in Australia comes tax-free. While there is no formal ‘inheritance tax’, other taxes still apply, and this is where many people are caught out.

Capital gains tax may be payable if you sell inherited property or shares, and income tax will apply to investment earnings such as rent, dividends or interest. 

Inherited superannuation can also attract tax, particularly if the beneficiary is not a dependent. Strategies such as recontributing funds back into superannuation – within contribution caps and under the right conditions – can help reduce the taxable component, but these require careful planning and professional guidance.

Understanding these rules is essential. Acting without considering the tax implications can erode the value of your inheritance, leaving you with far less than you expected.

The opportunity to reduce debt

Used wisely, an inheritance can provide the chance to reset your financial position. Paying down high-interest debt such as credit cards or personal loans is one of the simplest and most effective steps you can take. It not only saves you money but also frees up future cash flow. Even reducing a portion of your mortgage can deliver long-term benefits.

The key is to balance debt reduction with other priorities, ensuring you don’t miss opportunities to grow your wealth or support future goals.

Making inheritance work for your goals

Once you have addressed debt and short-term needs, the next step is to think strategically about what to do with the inheritance. The best approach will depend on your personal goals. For some, that may mean investing to build long-term wealth. For others, it could mean topping up superannuation, creating an education fund for children or planning for an earlier retirement.

Diversification is important. Putting all your inheritance into a single investment or asset class exposes you to risk. Instead, spreading it across a mix of shares, property and other investments can provide balance and resilience. Equally important is ensuring you have sufficient liquidity; in other words, that not all your inheritance is tied up in assets that are difficult to access when you need them.

Why professional advice makes the difference

Inheritance financial advice is about more than just investing money. It’s about making thoughtful, informed choices during a time when emotions and family dynamics can cloud judgement. A qualified adviser can help you step back, understand your full financial picture and map out a strategy that aligns with your long-term goals.

This includes clarifying tax obligations, weighing the pros and cons of different asset decisions and identifying opportunities that you might otherwise miss. It can also involve estate planning considerations, such as whether a family trust or other structure could provide protection and tax efficiency for future generations.

By seeking financial advice on inheritance, you give yourself the best chance of turning a one-off windfall into lasting financial security.

Honouring a loved one’s legacy

At its heart, an inheritance is a gift, a way for a loved one to continue supporting your future when they are no longer here. Making careful, well-considered decisions ensures their legacy has the impact they intended. Whether it helps you become debt-free, retire earlier or invest in your children’s future, the right plan can turn inheritance money into a lasting foundation for financial security.

Contact Apt Wealth Partners for tailored financial advice on your inheritance to ensure you honour the gift you’ve received.