News » Personal Finance for Women: What Women Need to Know When It Comes to Inheritance

April 10, 2024

Navigating the world of inheritance can be complex. Studies show that women in Australia are increasingly finding themselves at the helm of managing substantial wealth transfers, leaving a greater need for finance coaching and guidance on what to do with inheritance money.

From investment strategies like topping up your superannuation to managing tax implications and debt, this is a new era of significant financial shifts. In this article, Tracy Wan from Aspire2 Wealth Advisers delve into the key aspects of personal finance for women in Australia, addressing common questions and offering insights into effective financial planning and wealth management.

Women are Set to Inherit Trillions Over Coming Decades

An impending generational wealth transfer is fast approaching across the world, with women poised to inherit a significant portion of the projected US$68 trillion (A$100.2 trillion)—$3.5 trillion in assets transferred in Australia alone by 2050. The shift primarily originates from the baby boomer generation leaving their accumulated assets to their children, creating a monumental phenomenon in terms of both its scale and socio-economic implications.

Key factors driving this trend include women’s longer life expectancy, with forecasts suggesting women will manage family finances for at least twenty years post-inheritance. Moreover, increased asset acquisition through divorces, particularly among couples over 50, is contributing to this wealth shift, with high-net-worth women expected to control an estimated $15 billion annually.

The significant financial movement underscores the growing importance of financial literacy and management skills, especially among women.

With many women likely to assume control of substantial assets, the demand for expert financial advice and planning is expected to rise. Aspire2 Wealth Advisers emphasises the importance of a targeted financial coaching strategy and ongoing education for women, advocating for programs that address budgeting, investing, retirement planning, debt management and more. These educational initiatives aim to prepare women to confidently navigate and optimise the upcoming generational wealth transfer.

Common Questions on What to Do with Inheritance Money in Australia

When it comes to knowing what to do with inheritance in Australia, several questions often arise, such as “Do I pay taxes on inheritance?” or “Can I put inheritance into superannuation?”.

Understanding these aspects is crucial for effective personal finance management for women. Let’s address these queries and more, providing clear and comprehensive answers to help you make informed decisions about your inheritance and future financial planning.

Do I Pay Taxes on Inheritance?

In Australia, you typically don’t pay taxes directly on an inheritance. The federal estate tax and state-level ‘death duty’ taxes were abolished by 1982, meaning there’s no specific tax on the value of assets you receive.

With that said, if your inheritance includes any income-generating assets, like a rental property, you’ll be taxed on the income the asset generates, such as rental income.

Additionally, while receiving the asset itself isn’t taxed, selling it could attract Capital Gains Tax (CGT). A key point to note is the two-year exception period for CGT on inherited property; if sold within two years after the original owner’s death, CGT may be avoided. It’s advisable to consult with a financial or tax advisor for specific advice related to your situation.

How Can I Avoid Capital Gains Tax on Inherited Property?

Capital Gains Tax (CGT) on inherited property in Australia can potentially be avoided through several strategies.

One key method is the two-year rule: if you sell the inherited property within two years of inheriting it, you may be exempt from CGT. This applies regardless of how you’ve used the property, whether as a rental or residence.

If the property was inherited before September 20, 1985, you’re exempt from CGT, as the tax was introduced after this date. However, any significant improvements made post-1985 could incur CGT.

For properties that generated income (e.g., rented out), a partial exemption might apply, with CGT only being due for the periods it was rented. It’s important to consider the property’s cost base, including the market value at the time of the original owner’s death and associated costs, as this can reduce the taxable gain.

Again, professional advice is recommended for specific cases, especially if an extension beyond the two-year period is needed.

Can You Inherit Debt in Australia?

In Australia, inheriting debt from a loved one is generally not a concern.

Debts are the responsibility of the deceased’s estate, not automatically passed on to the next of kin or family members. If the estate has sufficient assets, debts are paid from these funds. In cases where the estate cannot cover all debts, they are usually written off by the lender.

There are some exceptions to this arrangement. For example, if you co-signed a loan or have joint accounts with the deceased, you may be responsible for those debts. The estate can contribute towards these debts, but any shortfall might be your responsibility.

After debts are settled, any remaining estate assets are distributed to beneficiaries as per the will. It’s essential to understand your financial obligations in joint accounts or as a guarantor to avoid unexpected liabilities.

Consulting an estate planning specialist can provide clarity on specific responsibilities and help navigate the complexities of estate settlement.

Can I Put Inheritance into My Superannuation?

Yes, in Australia, you can put an inheritance into your superannuation. Once you receive an inheritance, it becomes your personal funds, and you’re free to manage it as you see fit, including contributing it to your super.

Just be aware that there are limits based on super contribution caps and your age.

If you’re making a concessional contribution (before-tax) to your super and claiming a tax deduction, you’re subject to the annual cap of $27,500, plus any unused carry-forward amounts.

For non-concessional (after-tax) contributions, the cap is generally $110,000, considering the bring-forward rule.

Contributing to your super can be advantageous due to the tax-effective nature of compounding investing and may help streamline your retirement planning. Nevertheless, it’s important to consider that amounts contributed to super may be inaccessible until you meet certain conditions of release, like retirement. Personal financial advice is beneficial to make the best decision for your circumstances.

Explore More Personal Finance Support for Women with Aspire2 Wealth Advisors

Embark on a journey of financial empowerment with Aspire2 Wealth Advisors, dedicated to addressing the unique financial challenges women face. Whether you’re navigating inheritance, planning for retirement, or strategising wealth management, our expert team is committed to providing tailored advice and support.

Embrace the opportunity to enhance your financial literacy and secure your future. Contact us at Aspire2 Wealth Advisors today, and take a significant step towards mastering personal finance for women.

This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.