A guide to managing inheritance or a lump sum of money

July 3rd 2020 | Categories: Financial Planning | Estate Planning & Inheritance |

When you receive a lump sum of money it can be hard to decide what is best to do with it.

You should be considering what to do with the lump sum BEFORE you receive it so avoid any unnecessary taxation, and to optimise its potential.

In this article:

Types of lump sums
Think about your goals
Incorporating it into a financial plan
Receiving the lump sum – tax-effectively
Ways to invest a lump sum

Before we dive deeper into what to do with a lump sum of money, it’s important for you to know a bit more about Invest Blue and our approach to investing. Our Investment Philosophy outlines how we put our core values into practice with investments.

Types of lump sums

You may have been intentionally building a lump sum of money or may have come into one for a number of different reasons. Some of these include:

Savings
Inheritance
Prize or gift
Compensation payout
Superannuation withdrawal
Investment income
Work bonus
Redundancy payment

Think About Your Goals

A lump sum, no matter how small or large, could help you start working towards your dreams; perhaps a dream home, an education fund for your children, or even an investment portfolio that will compound and grow. With so many options and ways to spend it, knowing what’s most important to you is the first place you should start.

Here are a few articles and resources that will help:

Goals Made Simple – a quick worksheet to get you started
Goal Setting – a longer workbook to really get you thinking

Incorporating it into a financial plan

If you already have a financial plan in place, you should consider how this new lump sum will fit in with and potentially optimise your existing plan. If you don’t have a plan in place, we recommend working with an adviser to develop one.

There are many benefits that come from working with a financial planner. In this case, having an external and objective opinion about your financial situation will help you to use the lump sum of money in a way that will most effectively help you to achieve your goals, reducing the likelihood of emotionally driven decision making. A financial planner will also be able to explain the tax implications of dealing with the money.

If you’re interested in working with an adviser and/or developing a financial plan, you mind find these articles useful:

Receiving the lump sum

Whether you’ve been intentionally building your lump sum through saving or investing, or if you’ve come into money unexpectedly through inheritance or redundancy, you should consider the tax implications of how you receive it.

For more information on what to do regarding tax, read: what to do with a windfall or lump sum payment.

For further information on tax and inheritance, read How tax works when giving or receiving an inheritance.

For advice that is specific to your individual situation, it’s best to speak with a financial planner directly. Get in touch.

Ways to Invest a Lump Sum

Once you’re clear on what’s most important to you, your goals and your financial situation, you can begin to look at the different ways you can use a lump sum of money.

Depending on the amount that you have to use, you may decide on one purchase or investment or multiple.

Should I pay off my home loan with my super lump sum?

If you’re nearing retirement and still have an amount owing on your mortgage, you may have considered using your superannuation lump sum to pay it off. There are a number things you will need to know before going ahead with this, like if you’re able to access your super early, what money you will live on during retirement and the tax implications of doing this. To find out more, read this article.

A guide to choosing the right investment

When choosing the right investment, there are a lot of factors that need to be considered. Investment type, market timing, your level of risk and an overall wealth management strategy all need to be thought about. Our guide looks at all of these factors and has a tonne of articles and relevant content.

Speak with us today to discuss how to best manage a lump sum.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.