An investment bond can be a powerful way to protect your assets and ensure they go where you intend.
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.
“Our grandkids deserve to receive our money, regardless of what happens down the track.”
“We want our grandchildren to receive the full amount of our estate, without it being eaten away in tax.”
“We pay enough tax already. We don’t want to pay more than we need.”
Air-tight inheritance protection
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 his new partner and children would benefit at the expense of their paternal grandchildren.
Mary and John sought an air-tight solution that would avoid the inheritance from ever being contested and protect 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, Mary and John wanted to be sure their money would be used to set up the kids’ future. Being able to choose when they would receive the money was important to them.
An Investment Bond can safeguard your financial legacy
For Mary and John, an investment bond ensured they could plan their estate without the complexity and ongoing cost of a family trust, but still minimise—or avoid—the tax when it was distributed.
Some key features of investment bonds in this application include:
- A 10-Year Investment Bond meant they could 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 of their Estate); this means it cannot be contested and inheritance tax will not apply.
- Because ownership transfers to the grandchildren upon their death, Mary and John specified that monies were not to be released until they hit 25 years of age (known as a vesting age).
- You can transfer ownership of an investment bond at any time. If Mary and John lived to an age that exceeds the 10-Year Investment Bond, they have the option to continue it or pass it on to their grandchildren, 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. Neither do their grandchildren.
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).
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