Investing my inheritance

Summary

When receiving an inheritance, it can be difficult to know how to make the most of your money. Blended families can add an extra layer of complexity when you are looking to leave a legacy for your own children. This is where an Investment Bond can really shine.

Their situation

Melissa is in her mid-40s and works in a high-paying, corporate job. She’s in a happy second marriage, and lives with her two kids, along with her new husband and his two kids from a previous relationship.

Her father recently passed away and left her a large inheritance, which meant she could pay off debts and put money into Super.

There’s a limit to how much Melissa can put into super each year, so she’s seeking an alternative option to invest the $450,000 that’s left over.

Retirement is still a long way off, but she wants the flexibility to switch to a low-risk investment strategy as she gets closer to retirement.

The money will be used to create an income in retirement, so Melissa wants to minimise the tax she pays on any returns.

When she passes, she wants any money to go direct to her children without them having to pay tax on it. She doesn’t want her step-kids to contest the money for her children.

Why an Investment Bond was a good strategy

For Melissa, our investment bond ticked all of the boxes:

• A 10 Year Investment Bond meant her money was earmarked for access at retirement.
• She could put in an initial $250,000 into the Foresters Financial Investment Bond. Plus, could make additional contributions of surplus cash to her Investment Bond (subject to the 125% Contribution Rule).
• Income earned through the fund didn’t count towards her tax return because it’s paid within the fund, provided it was taken out after 10 years.
• Our investment bond has four investment options to choose from, offering flexibility to switch options as Melissa’s attitude to risk changes the closer she gets to retirement.
• Investment Bonds are a tax-effective investment as tax is paid within the fund at 30% (less than her current tax rate).
• Melissa can access her money if she needs to, but because the goal is retirement, she’s happy to keep it out of reach for 10 years.
• Melissa can nominate her children as the beneficiaries without the fear of it being contested by her husband (or his kids) as it sits outside her estate.
• When she’s ready to retire, Melissa can set it up as a tax-free income stream that doesn’t count towards her tax return.

Outcome

Melissa felt that the Investment bond offered her piece of mind, offering flexibility to access her money if the need arose, while still protecting her legacy.  Her inheritance would go to her children when she passes, without any contest, and they won’t have to pay tax on it.

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).