What Happens to Your Super and Assets When You Inherit — A Melbourne Guide

Understanding how inherited superannuation, property and investments are treated — and the decisions that follow

By Sunny Singh, Financial Adviser, Radiance Wealth

Reading time: ~10 minutes  │  Melbourne, Australia

Important note: This article is general information only and does not take your personal circumstances into account. Inheritance touches tax, superannuation, estate law and Centrelink rules all at once, and the right answer genuinely depends on your situation. The figures and rules referred to are believed to be current at the time of writing but are subject to change. Please seek personal advice before acting.

Receiving an inheritance is rarely a purely financial moment. It usually arrives alongside grief, family dynamics, and a sense of responsibility to do the right thing with what someone has left behind. In my work with Melbourne families, I have seen how often people freeze at exactly this point — not because they are careless, but because they want to honour the gift and are afraid of getting it wrong.

That instinct to pause is a good one. An inheritance is one of the few times in life when a large sum of money arrives all at once, and the decisions you make in the first year can shape your financial position for decades. But there is a great deal of confusion about how inherited money is actually treated — particularly when superannuation is involved, where the rules are less intuitive than most people expect.

This guide walks through what actually happens when you inherit superannuation, property and investments in Australia, the tax that may or may not apply, and the practical decisions that follow. It is written for the situation many people in their 50s and 60s find themselves in: navigating a parent’s estate while also thinking about their own retirement. For the broader picture of planning in these years, our Pre-Retiree’s Guide for Australians Aged 50–64 is a useful companion to this article.

Inherited Superannuation Is Treated Differently to Everything Else

The single most important thing to understand about inheritance is that superannuation does not automatically form part of the estate, and it is not taxed the same way as other inherited assets. This surprises almost everyone.

When someone dies, most of their assets — their home, their bank accounts, their share portfolio — pass through their will and into their estate, to be distributed according to that will. Superannuation is different. Super is held in trust, and where it goes is generally determined by a binding death benefit nomination made with the super fund, not by the will. If a valid binding nomination exists, the fund is directed to pay the benefit to the nominated person. If no valid nomination exists, the fund trustee decides, within the bounds of superannuation law.

This distinction matters enormously, because it affects both who receives the super and how it is taxed.

The dependant vs non-dependant distinction

For superannuation death benefit purposes, the tax outcome depends on whether the person receiving the benefit is a ‘tax dependant’ of the deceased. This is a specific legal definition, and it does not always match what we mean by ‘dependant’ in everyday language.

A tax dependant generally includes a spouse or de facto partner, a child under 18, a person in an interdependency relationship with the deceased, or someone who was financially dependent on them.

An adult child who was financially independent — the most common inheritance scenario — is generally NOT a tax dependant, even though they are obviously the deceased’s child.

Where a death benefit is paid to a tax dependant, it is generally received tax-free. Where it is paid to a non-dependant — typically an independent adult child — the taxable component of the super is taxed. This is why an adult child inheriting a parent’s super can face a tax bill that a surviving spouse would not.

The taxable and tax-free components

Superannuation is made up of a tax-free component (broadly, after-tax contributions) and a taxable component (broadly, concessional contributions and earnings). When a non-dependant inherits super, the taxable component is generally taxed at 15% plus the Medicare levy, while the tax-free component passes without tax. The proportions vary significantly from one person’s super to another, which is why two people inheriting similar-sized super balances can face very different tax outcomes.

This is also why, for the person doing the estate planning, there are sometimes strategies worth considering well before death to manage how super will be taxed when it passes on. That is a conversation for the person whose super it is, ideally years in advance — and it is one part of what our inheritance planning service exists to help with.

What About Inherited Property and Investments?

Property and investments held outside super pass through the estate and are distributed according to the will. The good news is that Australia does not have an inheritance tax or ‘death duty’ — you do not pay tax simply for receiving an inherited asset. But that does not mean the asset is free of all tax consequences. The issue is capital gains tax, and it applies when you eventually sell.

Inherited property and the main residence rules

When you inherit a property, you generally inherit it at either its market value at the date of death or the deceased’s original cost base, depending on when they bought it and whether it was their main residence. This inherited cost base is what your eventual capital gain is measured against when you sell.

There is an important concession for a deceased person’s main residence. If you inherit the home that was the deceased’s main residence and you sell it within two years of their death, the sale may be exempt from capital gains tax. If you hold it longer than two years, or rent it out, the picture becomes more complex and a partial capital gain may apply. In Melbourne’s property market, where an inherited family home can represent a very large asset, the difference between selling inside the two-year window and outside it can be substantial. This is one of the most common areas where families lose money simply through not understanding the timing.

Inherited shares and managed funds

Inherited shares and managed investments also carry across the deceased’s original cost base. This means that if a parent bought shares decades ago at a low price, you inherit that low cost base — and the accumulated capital gain comes with it. When you sell, the gain is measured from that original purchase price, not from the value at the time you inherited. For long-held portfolios, this embedded gain can be significant, and the decision of whether and when to sell is worth modelling rather than guessing.

A Simple Summary of How Different Inherited Assets Are Treated

The table below is a general summary only — every situation has exceptions — but it captures the broad differences that catch people out.

This is a general guide only. The rules contain exceptions and depend on individual circumstances, dates and structures.

The Decisions That Follow — and Why the First Year Matters

Once you understand how the assets are treated, the harder question is what to do with them. This is where I encourage people to slow down. There is rarely a need to make large, irreversible decisions in the weeks after receiving an inheritance, and there is often real value in giving yourself time to think clearly.

The temptation to do everything at once

A common pattern I see is someone receiving an inheritance and feeling they must immediately put it ‘to work’ — paying down the mortgage, topping up super, buying an investment, helping the children. Each of these can be sensible. But done all at once, without stepping back to look at the whole picture, they can also lock in decisions that do not fit together. The mortgage payment that leaves you short of liquidity; the super contribution that breaches a cap; the gift to an adult child that affects your own Age Pension position later. None of these are obvious in isolation.

Superannuation contribution caps and inherited money

One area that genuinely catches people out is the idea of moving an inheritance into super. It can be an effective way to hold money in a low-tax environment for retirement, but it is governed by contribution caps. Non-concessional (after-tax) contributions are capped annually, with a bring-forward rule that allows a larger amount over a three-year period for those eligible. Contributing a large inheritance without regard to these caps can trigger tax consequences that undo the benefit. The eligibility rules also depend on your age and your existing total super balance, so this is genuinely a case where the general rule is not enough and personal modelling matters.

The interaction with the Age Pension and your own retirement

For those in or approaching retirement, an inheritance can change your Centrelink position. Money received sits within the assets and income tests, and how you hold it — in super, in your own name, gifted away, or spent — affects your entitlements in different ways. Gifting rules in particular are widely misunderstood: giving money away does not necessarily remove it from the assets test straight away. This is one of the clearest examples of why inherited money should be considered as part of your whole financial plan, not treated as a separate windfall.

Practical Steps to Take After Receiving an Inheritance

If you have recently received an inheritance, or expect to, here is a general sequence that helps most people bring order to it.

• Understand exactly what you have inherited and how each part is treated. Separate super from estate assets, and note which assets carry an embedded capital gain.
• Check the timing that matters. If a main residence is involved, be aware of the two-year capital gains window before it closes rather than after.
• Resist irreversible decisions in the early months. Park cash somewhere safe and accessible while you plan; you are not losing an opportunity by taking a few months to decide.
• Look at the whole picture together. Consider how the inheritance interacts with your mortgage, your super caps, your Age Pension position and your own retirement goals — not each in isolation.
• Get advice where the numbers are large or the rules are complex. Super death benefit tax, CGT on inherited assets and Centrelink treatment are exactly the areas where a small amount of planning can make a large difference.

An Inheritance Is a Responsibility — and an Opportunity to Plan Well

Handled thoughtfully, an inheritance can strengthen your own retirement, provide for the next generation, and honour the person who left it to you. Handled in a rush, it can create tax bills, missed concessions and decisions that are hard to unwind. The difference is almost always time and understanding, not sophistication or large sums.

At Radiance Wealth, we help Melbourne families navigate exactly this — bringing together the super, tax, estate and Centrelink threads into a single clear plan. Whether you have recently received an inheritance, expect to, or are planning how your own estate will pass to the people you love, we would be glad to help. A good place to start is our inheritance planning service, or our Pre-Retiree’s Guide for Australians Aged 50–64 for the wider context.

Book an inheritance planning conversation with Ravi or Sunny.

Call (03) 9590 6341   |   Visit radiancewealth.com.au/contact-us   |   Suite 2.04/202 Jells Rd, Wheelers Hill VIC 3150