How to balance inheritance, mortgage debt and family expenses

If you’re lucky, receiving an inheritance in middle age (perhaps from a beloved aunt or grandparent) may make things easier. But for Australians with both elderly parents and children, an unexpected event in midlife can feel stressful and complicated.

Should you use this wealth to pay off your mortgage? Or would it be wiser to allocate this to your children’s future education and housing expenses? How about providing for your parents in their old age?

“Probably the best strategy is a combination of these approaches,” says Bold Wealth director Dylan Partiger-Green. “But when you’re emotionally intense, finding balance can be very difficult.”

He advises members of the so-called “sandwich generation” to seek specific, professional advice to maximize the intergenerational impact of their legacy. In the meantime, here are some suggestions to help you prepare for an unexpected event in midlife.

1. Assess the situation, then prioritize

“The first thing you need to do when you receive an inheritance is to take a breath and let the information sink in,” says Partiger-Green.

“Then write down two or three things that are important to you in the next five years, two or three things that are important in the next 10 years, and two or three things that are important in the next 20 years.”

For many midlife heirs, supporting their parents should they enter aged care and seeing their children through university or education will be on these lists. But these goals are not always the most urgent.

“Identify what is weighing you down the most financially right now and fix it,” says Partiger-Green. This might mean paying off your mortgage, paying your children’s school fees in advance, or getting help so your parents can stay home.

Partiger-Green says prioritizing doesn’t mean ignoring items on your 10-year and 20-year lists. “But making changes now that allow you to live a more comfortable life can give you more freedom in the future.”

For heirs who are parents, the desire to be charitable and allocate money to their children may be too strong to ignore.

2. Consider your own needs

Nicola Beswick, founder of White Rabbit Advisory, says it’s natural to want to help your parents and children in the long term, but once you’ve addressed any immediate financial needs you need to think about yourself.

“We often find that middle-aged clients have a belief that they will be fine financially. When we start asking them questions about their retirement prospects, they begin to realize they may need more money than they thought.”

Beswick advises heirs in midlife to be specific about what the rest of their lives might look like, modeling scenarios that take into account not only potential longevity but also the possibility of illness or reduced mobility.

He acknowledges that for heirs who become parents, the desire to be philanthropic and spare money for their children may be too strong to ignore.

“We encourage people who feel this way to compromise. Perhaps this means planning for a more modest lifestyle in retirement but not completely ignoring your needs.”

3. Accept that you can’t do it all

Very few of us will have an inheritance so large that we will never have to think about money again, especially if we have both parents and children to think about. But Beswick says the legacy doesn’t have to be big to make a meaningful difference.

“A high-quality education, including financial literacy education, is a gift to children because it enables them to be independent. We find that when adult children do not have financial literacy, that is where the pressure is greatest. [on parents] Help is coming.”

Keystone Advisory and Tax Director Kat Abrahams says clients who accept that they may 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 are trying to build their own wealth, in whatever form it takes, knowing that doing so will put them in a better position to help others when 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 conditions change, for better or for worse, these customers tend to respond better. Ultimately, it benefits everyone.”

• The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their 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 from the trading partner.