Some examples of this are:

• Inheritance
• Redundancy payment
• Work bonus payment
• Lottery winnings

A sudden injection of “surplus” money can be unsettling. What should you do with it? How does it impact your current plans?

The circumstances around you coming into the money might mean it’s an emotional time – such as receiving an inheritance from the loss of a loved one or being made redundant from your job. It’s important that if you do come into a sum of money you know what options you have and who to turn to for the right financial advice.

Understand the Tax

The first thing to do is understand the tax implications. In most of the above situations, coming into money is likely to result in some form of taxation. Inheritance proceeds may be taxed depending on where the money comes from. Redundancy payments, while concessionally taxed, will generally be subject to some tax. A work bonus is also likely to incur tax. Lottery and gambling winnings in Australia are tax free.

I strongly recommend that you discuss the likely taxation implications with your accountant or financial adviser.

What to do with the Money?

Before working out what to do with the money, a key step is to understand your goals and objectives. Having a clear understanding of this will drive what action you take. Often a financial adviser or planner can play an important role in these discussions.

Some ways you can spend an inheritance or other money:

• Pay down your mortgage: If you have a non-deductible home loan, your windfall could be directed to reduce your mortgage.
   
• Pay down other debt: If you have other non-deductible debt, such as credit card debt, a personal loan or car loan, available funds could be used to pay down this debt.
   
• Invest: After paying down debt, if you have surplus funds available, they could be invested towards investment to generate wealth. Rather than leaving assets in a bank account earning minimal interest the money could be put to work in a diverse portfolio of quality assets, invested for the long term to generate higher rates of return. Seek out a qualified financial or investment adviser.
   
• Contribution to super: Depending on your age and situation, superannuation could be a tax effective vehicle to invest funds. Up to $300,000 could potentially be contributed to super (up to $600,000 as a couple). Not only would earnings be concessionally taxed in the superannuation environment, it could provide an important boost to your retirement asset base. The concessional contribution cap of $25,000 could also be maximised, if appropriate, to offset personal income tax.     
   
• Enjoy some of it: If, within your financial plan, you have capacity to enjoy some of these funds. Go for it. This could include a holiday or home improvements.  

What else to Consider?

What structure to invest: Investing in the right structure can affect how earnings or future capital gains are taxed. Getting these decisions right from the start can avoid unnecessary tax in the future.

Estate Planning: Think about your estate plan. If you come into a larger sum of money, you may want to ensure these funds are protected in the event of your death.

Coming into unexpected money, while financially beneficial, can often be an emotional or stressful time, and throw up more questions than answers. Leaning on an independent financial adviser during these times can help guide you to make the right decisions for you and your family. If you’d like to speak with myself or another financial adviser at Hewison Private Wealth we can help you work through your options. Contact Us.