Expert reveals the costly error many will make with their inheritance windfall

Australians are set to inherit an insane amount of money over the next two decades, but many will make this very common mistake with it.

JBWere research in 2024 found that Australians would inherit more than $5.4 trillion over the next 20 years.

Bridges Financial Services financial planner Pete Brewster said, however, that regardless of how much money was inherited, many Australians still made the same common mistake.

“(Recipients) act too quickly and don’t take the time to understand how it could benefit them both now and in the future,” he said.

Apart from immediately spending it, others simply hold the money in cash, which reduces the benefit of the financial windfall.

With savings account interest rates typically sitting below inflation, leaving inheritance money in a transaction account means it’s effectively losing value over time.

“People are really hesitant to dig their toe in and make some big decisions because they haven’t got all the information and life can be uncertain,” he said.

“There’s no rush to make big decisions. They can certainly have some fun with it, but they could also consider how it benefits them in the future.”

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How to manage a windfall

Mr Brewster said there were several key decision points that could help people avoid costly missteps when receiving an inheritance, but there was no one-size-fits-all approach.

“Windfalls only come around every so often and it is human nature to feel the need to pop it in the balance, know it is there and see the balance,” he said.

What works for a 30-year-old with a mortgage is vastly different to a 55-year-old eyeing retirement and the picture changes depending on the individual’s income levels and how much they have invested.

For smaller amounts between $10,000 and $50,000, Mr Brewster recommends focusing on immediate financial relief such as paying down high-interest debt or building an emergency buffer that can free up cashflow later.

“You could put as little as $100 a week into your super if you’re employed and get a great tax benefit,” he said.

Mr Brewster also noted individual goals could have a large impact on how Australians used the money.

For younger people, a $50,000 windfall could simply give them breathing space.

This includes putting the money into an offset account to save on interest through to making major life decisions.

“Career wise, do you want to change fields? Or do you just want to reduce stress for a rainy day? So it is important to reflect on what you want to do with (the money) and seek some financial advice as well,” he said.

“Some of our clients who are older and more established, it is still life changing because they could be thinking about helping the next generation.”

Mr Brewster said inheriting a “medium-sized balance” up to $120,000 could require more strategic thinking, including staged approaches to reduce risk.

“Place funds in an offset account while plans become clearer, then gradually move amounts into super or diversified investments,” he said.

Larger amounts above $120,000 can be genuinely life changing, potentially affecting major decisions around housing, work or retirement.

“Turn a lump sum into steady income or long-term security instead of leaving it idle,” Mr Brewster said.

He also points out inheriting larger sums, particularly for older Australians, can create unrealistic expectations for children.

“Manage expectations about supporting children or family without affecting your own financial stability,” he said.

“Review estate and succession planning if the payout significantly changes your financial position.”