An investment bond can be a savvy way to manage a lump sum inheritance. Unlike superannuation, there is no cap to your initial investment amount. It is also still taxed favourably (30% taxed within your fund).
Adult children who have been hit with a large inheritance tax bill often like to use investment bonds to ensure they won’t be taxed again when it is their time to pass on a financial legacy. Or, to ensure they are not taxed when they start using the bond as income.
When Rose’s mother passed away, she inherited the house, other assets, and a large sum of cash. As her mother’s primary caregiver, Rose was already navigating a challenging emotional time, and the significant inheritance tax bill added to her distress. Seeing how much her mother’s hard-earned wealth was eroded by taxes was heartbreaking.
Rose works full-time and is married with two kids, but her marriage has been a bit rocky. She wanted to ensure that if she and her husband ever split, her mother’s inheritance would remain protected and not go to him. More importantly, she wanted to honor her mother’s legacy and use the money to do good.
"I now have a plan in place to protect my mother’s legacy, knowing there'll be no extra tax paid when I or my children need to access the funds."
After researching her options, Rose found that an investment bond could protect against the tax payable when the funds are distributed. This solution allowed her to hold ownership of the inheritance while planning to pass the money on to her children at the right time.
In case her marriage ends, her husband would have no claim to the money, even if she passed away before him, because she had named her children as the beneficiaries. There were no caps on the initial first-year investment, so Rose could invest the entire amount she received from her mother.
Investment bonds are tax-effective investments as the tax is paid within the fund at 30%, which is less than Rose’s current tax rate. This gave her reassurance and the flexibility to transfer ownership to her children. Additionally, since the tax is paid within the fund, she doesn’t have to list any income earned on her tax return, provided she takes it out after 10 years. Most importantly, there is no tax payable when the money is distributed, which helps avoid further erosion of the balance.
With an investment bond, Rose now has a plan in place to protect her mother’s legacy and she feels satisfied knowing there won’t be any extra tax paid when it’s time to access the money. What’s more, although the funds are earmarked for her children, she still has the ability to access the inheritance if needed.
An Investment Bond provides peace of mind
An Investment Bond can be a powerful way to protect your assets and ensure they go where you intend.
Grow your wealth,
consolidate your legacy
consolidate your legacy