An investment bond can help you to plan your estate without the complexity and ongoing cost of a family trust, but still minimise – or avoid – the tax when it’s distributed.
Mary and John have an older son, Tim, who has two children of his own and two stepchildren from his 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 that his new partner and stepchildren might benefit at the expense of their paternal grandchildren.
Mary and John sought an air-tight solution to ensure their inheritance would not be contested and to protect their hard-earned wealth from being eroded by taxes. Since they are both working, they plan to keep adding to their original investment but do not want any returns to impact their taxable income, as they are already in a high tax bracket.
With their grandkids still in their early teens, Mary and John wanted to ensure the money would be used to set up the kids’ future. It was important to them to be able to choose when their grandchildren would receive the money.
"Our grandkids deserve to receive our money, regardless of what happens down the track."
Mary and John chose a 10-Year Investment Bond, which allowed them to ring-fence money intended for their grandchildren while continuing to grow it. Their grandchildren were nominated as the beneficiaries of the fund, which sits outside their estate, meaning it cannot be contested and inheritance tax will not apply.
They also specified that the funds were not to be released until their grandchildren reached 25 years of age, and have the option to transfer ownership of the investment bond at any time. If they live beyond the 10-year term of the bond, they can choose to continue it or pass it on to their grandchildren tax-free. The tax is paid within the fund at 30%, which is less than their current tax rate, and because the tax is paid within the fund, Mary and John don’t need to declare any returns on their annual tax returns, nor do their grandchildren.
By choosing an investment bond, Mary and John were able to ensure their financial legacy is protected, their grandchildren’s futures are secured, and their wealth is safeguarded against unnecessary taxation and potential disputes.
Safeguard your financial legacy
Because an investment bond sits outside of your estate plans, it cannot be contested and is exempt from inheritance tax. This ensures you can specify exactly where you want the investment to go.
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