"My mother's estate is soon to be dispersed and I am being asked if I would like my proportion in shares or cash. Given the current state of the stock market, what should I choose?"
- Question from Kim, Box Hill South, VIC
Top answer provided by:
Jessica Basinillo-Weaver
Hi Kim,
This is a great question, and one that comes up often, especially when markets are a bit unsettled. There’s no one-size-fits-all answer and without knowing more about your financial circumstances I cannot provide a definitive answer, however there are a few important factors I’d encourage you to consider before making a decision:
- Do you need the cash right now?
If you’ve got immediate expenses, debts to clear, or a big purchase on the horizon, taking the cash might be the most practical option. Having access to funds when you need them can provide peace of mind and flexibility.
But if your financial position is stable and you don’t have a pressing need for the money, it could be worth thinking about the longer-term potential of keeping the shares.
- Are you investing for the long term?
If you’re in a position to invest and you’re comfortable riding out some ups and downs, holding onto the shares could be a smart move. Over time, the share market has historically delivered strong returns, but it does require patience and a bit of resilience during the more volatile periods.
It’s also worth considering whether the shares you’re inheriting are in companies or sectors you’d be happy to hold. If not, you could always sell and reinvest in something more aligned with your goals.
Additionally, consider whether your overall investment portfolio is diversified across different asset classes. Holding a concentrated position in a single company or sector may increase risk. If capital gains tax isn’t too onerous, selling some shares to diversify into other asset classes – such as fixed interest or property – could help balance your portfolio and help manage risk over the long term.
- What about Capital Gains Tax?
When you inherit shares, you don’t pay tax at the time you receive them. However, CGT may apply if and when you sell them down the track.
If the shares were originally acquired by your mother on or after 20 September 1985 (which is when CGT rules came into effect), you inherit her original cost base, including any associated costs like brokerage. This means any capital gain or loss is calculated from that original base, not from the value at the time of her passing.
There are other methods of calculating CGT depending on when the shares were acquired and other estate factors, but I won’t go into all of those here. It’s something a financial adviser or accountant can help clarify based on your specific situation.
- What’s happening in the market?
Markets go through cycles. They always have and always will. Looking at the stock market over the past 30 years, we’ve seen crashes, recoveries, booms, and everything in between. But the long-term trend has been upward.
Trying to time the market is incredibly difficult, even for professionals. If you’re investing for the long haul, the key is to stay the course, stay diversified, and avoid making decisions based purely on short-term noise.
Final thoughts
Managing an inheritance can be complex and any decision should be made with the support of a financial adviser to help navigate the options your have.
Generally speaking though, if you don’t need the money right now and you’re comfortable with some market movement, keeping the shares could be a great way to grow your wealth over time. However, it’s important to assess whether your investments are appropriately diversified. If the capital gains tax implications are manageable, it may be worth selling some to diversify into other asset classes.
But if you’re unsure, or the shares don’t suit your needs, taking the cash might give you more control and clarity.
Either way, it’s worth getting some tailored advice to make sure the decision fits with your broader financial picture.
Jessica Weaver is a representative of Perpetual Trustee Company Limited (PTCo), an ASIC regulated entity and Australian Financials Service Licence holder (ABN 42 000 001 007, AFSL 236643). The information provided is general only; it is not intended to provide financial advice and does not purport to account for any individual’s personal financial situation, needs or objectives. You should always consult with a financial adviser before making any financial decisions.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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