Summary

An investment bond can be a great option to protect your assets, so they end up where you want them to go. Because it sits outside of your estate plans, it can’t be contested and is exempt from inheritance tax. Meaning you can specify exactly where you want the investment to go.

Their situation

Mary and John have an older son Tim, who has two children of his own, and two older stepchildren through Tim’s second marriage.

They were concerned that when it came time to pass on an inheritance it would automatically go to Tim (and his new partner). They worried his new partner and children would benefit at the expense of their paternal grandkids.

They sought an air-tight solution that would avoid the inheritance from ever being contested and their hard-earned wealth from being eaten away in tax.

Because Mary and John are both working, they plan to keep adding to their original investment but don’t want any returns to impact their taxable income as they are already in a high tax bracket.

As their grandkids are still in their early teens they wanted to be sure their money would be used to set up for their future, so being able to choose when they would receive the money was important to them.

Why an Investment Bond was a good strategy

An investment bond for Mary and John was one way they could plan their estate without the complexity of a family trust, but still, minimise (or avoid) the tax when it was distributed.

• A 10 Year Investment Bond meant they could ring-fence money intended for their grandkids while continuing to grow it.

• Their grandkids were nominated as the beneficiaries of the fund (which sits outside their Estate).

• This means that it can’t be contested, and inheritance tax won’t apply.

• Because ownership would transfer to the grandkids upon their death, they specified that monies weren’t to be released until they hit 25 years of age (known as a vesting age).

• With an investment bond you can transfer ownership at any time, so if they lived to a ripe old age that exceeded the 10-year investment bond, Mary and John have the option to continue it or pass it on to their grandkids tax-free.

• Investment Bonds are a tax-effective investment as tax is paid within the fund at 30% (less than their current tax rate).

• Because the tax is paid within the fund, Mary and John don’t need to declare any returns on their annual tax returns, and neither do their grandkids.

Outcome

Mary and John felt a sense of relief, knowing that their money would end up with their grandchildren no matter what in the most tax-effective way possible.

They liked that they could use it to save and invest each year without impacting their income.

This information is intended to be general in nature and was prepared without considering your personal objectives, financial situation or needs. Please consider the information contained in the Product Disclosure Statement and Target Market Determination before deciding to acquire the products. Please obtain independent professional advice from a qualified financial adviser, registered tax agent or lawyer before making any decisions. Past performance is not a reliable indicator of future investment returns. Tax laws may change in the future which may affect an investor’s tax outcomes. While all reasonable care has been taken in producing the information, to the extent permitted by law, Foresters Financial makes no representations and gives no warranties of any kind in respect of the accuracy or completeness of the information. Financial services are provided by Foresters Financial Limited (ABN 27 087 648 842, AFS Licence No. 241421).