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Dealing with the loss of a loved one is never easy, and the process of managing an inheritance can add to the emotional burden. Judy’s story is a poignant example of how overwhelming it can be to navigate the legal and financial responsibilities that come with inheriting assets. From the initial shock of her mother’s passing to the practical steps of settling the estate, Judy’s journey highlights the importance of seeking professional advice and taking thoughtful steps to manage an inheritance effectively. This narrative underscores the significance of understanding the intricacies of estate planning and the support available to those who find themselves in similar situations.
Coping with the Initial Shock
It was the overwhelming silence that hit Judy the first time she visited her family home after her mother’s passing. With that thought came the slow, deepening realization that she was going to have to cope with a lot more than the heart-breaking grief. As she sat alone, surrounded by the possessions her mother had accumulated during her long, happy life, Judy felt completely lost as to how she was going to deal with packing up her mother’s house, much less sorting through the other assets she had received as an inheritance.
Judy, of course, is not alone. More than $120 billion in assets were inherited by family members during 2018, and the Productivity Commission believes this number is set to double to $224 billion by the year 2050. This massive transfer of wealth underscores the importance of understanding how to manage an inheritance effectively.
Navigating the Legal and Financial Maze
A few weeks later, Judy found herself at the office of her mother’s solicitor. They began by going through her mother’s Will and setting in motion the legal requirements to close her mother’s bank accounts, credit cards, and slowly settle her mother’s Estate. As an only child, Judy’s mother had left her everything, so at least there were no issues surrounding the Will and what would happen next. However, Judy was clearly lost, which prompted her mother’s solicitor to reach out to her and offer guidance on managing her inheritance.
“As terrible as today is, every day will slowly get better until there comes a day when you will think of your mother and be filled with happy memories,” he said. “She was so proud of you, she would really want you to make the most of this inheritance, so let’s make sure you do.” He then suggested three things: make a list of what needed to be done, work through that list as slowly or as quickly as felt right for Judy, and then, he recommended a caring financial planner and accountant who could help with the rest.
As Judy progressed along this journey, she learned she would inherit her mother’s Estate tax-free and that she had two years to sort through her mother’s assets, sell what needed to be sold, and transfer other assets to her name. Once this time passed, transferring assets would ‘trigger’ a capital gains event, and she would have to pay tax on any gains in the value of assets that would be transferred after that time. Understanding these details was crucial for Judy to manage her inheritance effectively.
Making Thoughtful Decisions
Her new accountant and financial adviser walked her through what had to be done. The biggest asset was her mother’s home. As Judy had her own home and didn’t want to move, it needed to be sold. The thought of keeping it and renting it out just seemed too painful and full of complications. During one of their early meetings, Judy said in a guilty voice that she would like to use some of the money left to her to buy a new car and asked if this would be okay. Her accountant thought that was a very good idea and even suggested Judy go on a short holiday just to clear her mind.
It would help her prioritize what she wanted to do long-term with the money from the sale of her mother’s home and the other assets left to Judy as part of her inheritance. It was good advice. Judy needed time to think things through. When she returned from her break, with her accountant’s help, she developed a strategy. She would use most of the cash from the sale of her mother’s home to pay out her own mortgage. Judy knew her mother would be very pleased with this decision.
After paying for her new car, Judy decided the rest of the money would slowly be moved into her superannuation account, when and how the contribution laws allowed, and where it could sit in a tax benign environment building to secure her future. And slowly, she started to focus more on the happy memories she had of her mother, feeling more at peace with her inheritance.
Estate planning is a team effort. For more information, please speak with your Accountant, Solicitor, and Financial Adviser to ensure you manage your inheritance effectively.
