Big inheritance is a life changer
Ihave big questions. I am 38 years old and I live with my partner, who is 26. We have recently combined all of our assets and finances. We have a two-year-old daughter and I have two children from previous relationships. I am about to inherit $600,000 plus the home we live in, which is worth $350,000.
I have never had much of a clue about investing and creating wealth. We have a combined income of $80,000. I have $25,000 in super and my partner has $16,000 in super. We have combined debts of $45,000. I am currently salary sacrificing and pay 15% of my income towards super. I would like my partner to do the same.
What would be the best way to really make this inheritance change the shape of our lives for my children and grandchildren? I like the idea of buying property to invest in but would also like to finance a home to suit our family needs.
Renee
No argument, Renee – these are big questions. But initially, anyway, it is not about investing, it is about your long-term plans, which should be reflected in your estate planning and your will. You have given me an important clue when you say that you have merged finances with your partner and that you want to “change the shape of our lives for my children and grandchildren”.
With this large amount of money coming into the family, one of the first issues for you is how this money is seen. Will you hold it in your name and potentially invest and buy a home in your name, or will you also merge this money with your partner’s and invest jointly?
This is a really important issue where you and your partner need to discuss and agree on a path that works for you. Obviously, as you are both well aware, relationships break up. If this were to happen with your new relationship, is the plan to look at who brought what into the relationship or would it be split between you? This is not an easy conversation but over the decades it seems to me that couples who have a plan for the worst, such as a break-up, in my experience tend to have fewer relationship problems. This is better sorted sooner than later and, given the very large amount involved, I would be discussing the issue with a solicitor and also getting your wills done as part of the process.
So once the issue of “whose money is it?” is agreed, then the next big discussion is your home. Is this where you will keep on living? If so, will you do a renovation? This conversation with your partner should be fun. You have the opportunity to buy a bigger home or move to another area. Things that might impact this are access to schools and things such as health, entertainment and other facilities that suit the way you and your family want to live.
It would make a lot of sense to put aside in a safe investment, such as a term deposit, the amount of money needed to renovate or buy a new home. If you decide to buy a new home, you would need to think about whether you would keep the old home and rent it. Depending upon your plans, this could use quite a bit of the $600,000, or if you are staying put and not renovating, it will use none of it!
The investing part is not really that difficult. First up, you would pay off your combined debts of $45,000. Next you would invest the balance in something safe, such as a term deposit, while you do your planning. Clearly, the amount to be invested would depend on your housing plans but whether the amount left over is large, medium or small the same principles apply.
Given the amount you are likely to be investing and your lack of experience, I really do think a trip to see a professional, fee-charging adviser is the way to go. Avoid anyone who offers you “free advice” – the reality is they will want to sell you product. You need an adviser, not a sales person. Take a look at the Financial Planning Association website to find qualified advisers near you but do not be afraid to ask how they charge. A good adviser will be pleased to answer this question and supply it in writing.
In terms of your super, topping it up via salary sacrifice is a good plan, as you know this locks it away until your retirement, which is many decades away. Incidentally, you could use some of the inheritance to add to super as a contribution of your own money. This could be as high as $300,000 into your fund. Again, you really need to talk to your fund or an adviser about this.
You are about to receive nearly $1 million. Wisely invested in a home, shares or other assets this money can care for your future and assist your kids and grandkids. But it is far too important an issue to deal with in the few words I can write here. I have tried to give you a picture of what is important in your decision-making process but there is no doubt in my mind that good advice, both legal and investment, is the key next step for you.
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Paul’s verdict: You will need to answer a tough question: “Whose money is it?” Decide whether you want to buy a new home or renovate