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If you’re lucky, inheriting in midlife – perhaps from a beloved aunt or a grandparent – can make things simpler. But for Australians with both elderly parents and children to worry about, a windfall in middle age can feel stressful and complicated.
Should you use the wealth to pay down mortgage debt? Or would it be more prudent to put it aside for your kids’ future education and housing expenses? What about providing for your parents in their old age?
“Chances are, the best strategy is a combination of those approaches,” says Bold Wealth director Dylan Partiger-Green. “But finding the balance can be very difficult when you’re emotionally invested.”
He recommends members of the so-called “sandwich generation” seek tailored, professional advice to maximise the multi-generational impact of their inheritance. Meanwhile, here are some suggestions to help you prepare for a midlife windfall.
1. Take stock, then prioritise
“The first thing you should do when you receive an inheritance is take a breath and allow the information to settle,” Partiger-Green says.
“Then, write down two or three things that are important to you in the next five years, two or three things that matter in the next 10 years, and two or three things that are important in the next 20 years.”
For many midlife inheritors, supporting their parents if they enter aged care and seeing their children through university or training will feature on those lists. But those goals are not always the most pressing.
“Identify the thing that is financially pulling you down the most right now, and fix it,” Partiger-Green says. That might mean paying down mortgage debt, forward-paying your children’s school fees or employing help so your parents can remain in their home.
Prioritising doesn’t mean disregarding the items on your 10-year and 20-year lists, Partiger-Green says. “But making changes that allow you to live a more comfortable life now can give you more freedom in the future.”
For inheritors who are parents, the desire to be benevolent and put money aside for their children can be too strong to ignore.
2. Consider your own needs
It’s natural to want to help your parents and children over the long term but, once you’ve addressed any pressing financial needs, you should think next about yourself, says White Rabbit Advisory founder Nicola Beswick.
“Often, we find that clients in midlife have a belief that they’ll be OK financially. It’s not until we start questioning them about their expectations for retirement that they start to realise they might need more money than they thought.”
Beswick advises midlife inheritors to get specific about what the rest of their lives might look like, modelling scenarios that consider not only potential longevity but also the possibility of illness or reduced mobility.
She acknowledges that for inheritors who are parents, the desire to be benevolent and put money aside for their children can be too strong to ignore.
“We encourage people who feel that way to compromise. Perhaps that means planning for a more modest lifestyle in retirement, but not ignoring your needs entirely.”
3. Accept that you can’t do it all
Few of us will inherit such a large amount that we never have to think about money again, particularly if we have both parents and children to consider. But an inheritance doesn’t have to be large to make a meaningful difference, Beswick says.
“A high-quality education, including education in financial literacy, is a gift to children because it enables them to be independent. We find that when adult kids don’t have financial literacy, that’s where a lot of the pressure [on parents] to help comes from.”
Kat Abrahams, director of Keystone Advisory & Tax, says clients who accept that they might not be able to “wave a magic wand” and fix everything for their parents and children are more likely to make decisions that benefit everyone.
“What we tend to see is that they look to build their own wealth, in whatever form that might be, in the knowledge that doing so puts them in a better position to help others when it’s needed.”
Abrahams points out that life is uncertain, and says her clients rarely regret being conservative and realistic about what they can achieve for their families. “When circumstances change, for better or worse, those clients tend to be better able to respond. Ultimately, that benefits everyone.”
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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This story was created in partnership with Vanguard. The content is independent of any influence by the commercial partner.
