Australia is on the cusp of the largest wealth transfer in its history, as the older generation begins passing down trillions of dollars in assets through inheritances. The Productivity Commission estimates that around $3.5 trillion in assets will be transferred in Australia alone by 2050.1 In this article, we explore the complexities and decisions that come with receiving an inheritance.
Who is going to inherit?
The average Australian inheritance hovers around $125,000, with most recipients in their 50s according to the Productivity Commission.2 A 2023 survey showed 27% of respondents expect to receive between $50,000 and $250,000, with 5% expecting an inheritance of between $1m and $2m.3
Receiving an inheritance often brings a mix of emotions that can complicate financial decisions. The sudden influx of wealth can tempt even the most prudent savers into impulsive spending. If you're anticipating this type of windfall, making informed financial decisions is essential.
Understanding your inheritance
It's important to understand the nature of your inheritance. Inheritances can come in various forms, such as cash, property, or even shares, and each type has different financial implications. For cash inheritances, there's no tax to pay, as inheritances are generally not taxable in Australia. However, if you inherit property and decide to sell it, you may need to pay capital gains tax if the property has increased in value since you inherited it. The ATO provides useful answers to some common questions about inheritance and tax.
What to do with your windfall
When it comes to using your inheritance wisely, it's crucial to assess your current financial situation. Paying off a mortgage or high-interest debt, contributing additional funds to your superannuation, or investing in other areas can provide long-term benefits. However, the urge to splurge can be strong. Balancing immediate desires with future financial needs is key.
An inheritance and the Age Pension
When it comes to your retirement plan, understanding how an inheritance affects the Age Pension is crucial. You'll need to notify Centrelink within 14 days of receiving an inheritance as it may affect Age Pension eligibility. The inherited amount could count as an asset and might impact income tests, potentially reducing pension payments. Learn more about SASS members eligibility for the Age Pension.
Leaving an inheritance – what you need to know about your SASS benefit
Your SASS benefit, and any other super you may have, are ‘non-estate’ assets and therefore won’t automatically be included in your will. Some super funds let you nominate who should receive your assets if you die, but this option doesn’t exist for the SASS scheme.
Once you die, your SASS death benefit will pass to your spouse or de facto partner through a death benefit which is in most cases, paid as a lump sum. If you don’t have a spouse or de facto partner, your benefit will be transferred to your estate, which is why it’s crucial to have an up-to-date will in place. If you’d prefer to pass your assets to someone else when you die, you’ll need to think carefully about options for your super at retirement.