Tips To Protect Your Inheritance From Taxes

If you inherit money or property from a loved one, you’ll want to ensure that the inheritance is taxed as little as possible. However, as a beneficiary, you have to pay taxes on income generated from the inherited assets or on any capital gains made when selling them.

So, how can you ensure that your inheritance is protected from taxes?  Here are six tips you need to take note of:

Take Advantage Of Tax-Free Thresholds

When it comes to inheritance taxes, every family has different needs and considerations. However, one general tax strategy that can help reduce the amount of taxes owed on an inheritance is to utilize tax-free thresholds. These refer to exempt amounts that can be applied to certain types of inherited property, such as homes, vehicles, and even some investment accounts. By taking advantage of these thresholds, you can significantly reduce the amount of taxes owed on your inheritance.

In some cases, you may avoid paying taxes altogether. Of course, working with a qualified tax professional is essential to ensure that you’re taking advantage of all the available tax breaks and exemptions. However, tax-free thresholds are a great way to help protect your inheritance from taxes.

Take Advantage Of Spousal And Dependent Tax Offsets

If you inherit assets from your spouse or dependent relative, you may be able to take advantage of spousal and dependent tax offsets. These offsets can potentially reduce or even eliminate the taxes owed on inherited assets. It’s important to note that to qualify for these offsets, you must have been a legal spouse or dependent at that time. Also, it’s important to note that spousal and dependent tax offsets may not apply to all types of inherited assets, so it’s wise to seek professional advice regarding your specific situation.

Consider Setting Up A Trust Or Family Investment Company

Another way to protect your inheritance from taxes is to consider setting up a trust or family investment company. In such situations, the inherited assets will be transferred into the trust or company, and then managed by a trustee or board of directors (which may include family members). The trust or company can then make investments and generate income while potentially benefitting from tax deductions and concessions. However, setting up a trust or family investment company can be a complex process, and it’s crucial to seek professional financial and legal advice before making any decisions.

Maximize Concessional Contributions

Inheriting a massive sum of money or valuable assets can put you in a higher tax bracket. In this scenario, one way to protect your inheritance from taxes is to maximize concessional (before-tax) superannuation contributions, as these can potentially reduce your taxable income. Of course, working with a qualified financial advisor is crucial when making decisions about superannuation contributions, as there are strict contribution limits and rules in place. However, strategizing around them can be a smart way to help protect your inheritance from taxes.

Review Your Investment Mix

Inherited assets may include investment accounts, such as stocks, bonds, and mutual funds. One way to protect your inheritance from taxes is to review your overall investment mix, ensuring that you have a diverse portfolio with a balance of growth and income-generating investments. This can help reduce the amount of capital gains taxes owed on any sold investments. Additionally, it’s essential to consider the tax implications of any potential investments before making decisions about buying or selling stocks or other assets.

Consider Gifting

As one saying goes, ‘It’s not what you make, but what you keep.’ This is especially true with inheritance. Even if you’re lucky enough to come into a large sum of money, taxes can quickly eat away at your windfall. However, there are ways to lower the tax burden on your inheritance.

One of the most effective methods is gifting. Giving money or property to your heirs while you’re still alive can help them avoid paying taxes on their inheritance. In addition, gifting can also help you reduce your tax liability. However, you must note that there are rules and limits in place regarding gifting. For example, you can’t gift more than USD$16,000 to any one person in a single financial year without incurring the gift recipient’s potential tax liability.


Inheritance can be a valuable source of financial security, but taxes can quickly eat away at your windfall. By taking advantage of spousal and dependent tax offsets, maximizing concessional contributions to superannuation, reviewing your investment mix, and considering gifting, you can protect your inheritance from taxes and ensure its longevity for generations to come. However, seeking professional advice before making any decisions regarding your inherited assets is essential. Their knowledge and experience will be beneficial in helping you decide the best methods of protecting your inheritance from unnecessary taxes.