Summary

An investment bond gives you the option to invest on behalf of a child or a grandchild, niece, nephew, godchild, etc.  You can continue to be the owner of the investment, or you can set a date when ownership gets automatically transferred to the child.

Parents (and grandparents) often use investment bonds to help set their children up for financial success.

Their situation

Jenny and Miles have just had their first child, Josh, and are already thinking about how to give him the best opportunity in life.

They have seen housing prices continue to rise and the cost of living explode. They worry that it will be hard for Josh to get ahead and set himself up financially when the time comes and want to do what they can to help.

Right now, their money is squeezed between one income, paying off a mortgage, and general living expenses. They want to start now – worried that when the time comes, they won’t have enough.

Their grandparents have expressed interest in helping too.

Why an Investment Bond was a good strategy

An investment bond provided a way to save for their child’s future.

• A 10 Year Investment Bond means you’re not tempted to use it for other things.

• To protect the funds from misuse, they kept the investment bond in their names but added their child as the beneficiary.

• They could continue to grow funds each year, but no more than 125% than the previous year.

• Grandparents could also contribute money to the fund.

• They will benefit from not having to count any returns towards their taxable income. Especially important during the early years when they want to maximise government benefits like childcare rebates.

• They could select a high-growth investment option, knowing that it would be many years before they wanted to touch the money.

• Although they were saving for Josh’s future, having the option to access the money in case of an emergency gave reassurance.

• Being able to transfer the ownership at any time meant that they had control over when the money ended up in his hands. A safeguard in case he ever went off the rails or they thought they should hang on to the money for a bit longer.

• Because the tax is paid within the fund there will be no tax paid when they (or Josh) start to use it and it doesn’t count toward their income.

Outcome

Jenny and Miles were able to put an initial amount in and planned to save a regular amount each year. They liked having the money separate from anything else because it would remove the temptation to reallocate the funds as time went by.

Grandparents were happy as they could contribute to Josh’s future when they could.

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).