Passing on wealth: investment bonds for estate planning
MB+M Wealth Creation Team Update : Passing on wealth: investment bonds for estate planning
When most people hear the words “estate planning” they usually think that wealthy individuals are the only ones who need it. Regardless of how much money you have, you need to think about what will happen to your assets and who should receive your valuables after you’re gone.
Effective estate planning results in the right assets going to the right people at the right time, with a minimum of fuss and expense. The ultimate objective is certainty and peace of mind.
Looking after the next generation
Investment bonds provide an efficient and cost effective way of providing for estate planning and intergenerational wealth transfer. They offer certainty and peace of mind over how the transfer of your wealth occurs once you’re gone.
Investment bonds are also a popular choice for estate planning as they sit outside the will and cannot be challenged when a beneficiary is nominated. When an investor nominates beneficiaries, any funds placed within the bond form no part of the estate; they are paid directly to those beneficiaries.
Scenarios for effective use of an investment bond when estate planning
- Allowing for blended families to financially provide for children of previous relationships, for a new spouse’s children or for estranged children – whilst using a conventional will to provide for a current spouse and children
- Solving potential conflicts and inequities between children and grandchildren that might be complex and difficult to handle under a will
- Making charitable bequests to organisations such as charities, hospitals, schools and religious groups (beneficiaries may be a natural person, an entity including a company or trust)
- Privately meeting moral obligations to non-related parties and friends
Beneficiary benefits (in a nutshell)
- The beneficiaries will receive the proceeds of the investment tax free. This is irrespective of whether the investment bond has been held for less than 10 years or not.
- Proceeds pass outside of your will and legal estate avoiding possible challenges and claims
- There are no delays associated with the granting of probate or the administration of your estate
You can also nominate individuals, companies, trusts or charities to receive your bond proceeds on the death of the last surviving life insured. If the beneficiary is not nominated, it will be paid to your estate.
There are no restrictions on the number of beneficiaries you can nominate or what percentage to allocate to each beneficiary. You can also add or remove a beneficiary and change the benefit percentage allocations at any time.
Investment bonds also offer tax advantages for planning your estate and transferring wealth. An investment bond like Generation Life’s LifeBuilder allows all earnings in the bond to be taxed at a maximum rate of 30%.
Automatic transfer of your investment
Generation Life’s EstatePlanner’s unique Future Events feature gives you the control to arrange the automatic transfer of your investment at a future set date or on your death. Importantly, the investments tax status will be preserved for the future recipient as the 10 year advantage period isn’t re-set. For extra peace of mind, you can also control when the recipient can make withdrawals and limit the amount they can withdraw each year. All controlled by you.
Case study – Blended family
John has two children by his first marriage. He is now remarried and wants to leave his two children an inheritance, in the case of early death, that cannot be challenged.
John establishes a Generation Life LifeBuilder Bond and nominates each of his two children. He is both the bond owner, and the life insured. In the event that John passes away, the funds will be distributed tax free to his children. If not, he retains complete control of his investment and can distribute the assets at a later date.
Case Study – Future event
Margo has a devoted grandson who’s currently 24 years old, but he’s not good with money. She wants to help him financially, but is worried he may waste a lump sum of money. She also wants to delay his inheritance until he is older.
Margo establishes a Generation Life LifeBuilder Bond with Future Event conditions:
- $100,000 lump sum invested
- Transfer at age 40 to her grandson
- Limits the amount that can be withdrawn by her son to $10,000 per annum
Margo meets her goal of helping her grandson, but gives herself peace of mind that the funds cannot be depleted once she passes.
If you have questions you would like answered, or need help with your estate planning, please reach out to the Wealth Creation Team who have had extensive experience in this area on 03 5821 9177 and speak with one of our leading certified advisers.
MB+M/OzPlan Wealth Creation Team
This publication has been compiled by OzPlan Financial Services, ABN 35 005 391 202 AFSL 221235 and is current as at time of preparation, Febuary 2021.
Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such.
The information and any advice in this publication do not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.
This publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose.
It is important that your personal circumstances are taken into account before making any financial decision, and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication.
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