Investment bonds are proving to be a popular alternative estate planning strategy, particularly among older SMSF trustees with super balances greater than the $1.6 million transfer balance cap, according to Australian Executor Trustees (AET).
“It’s no wonder they’re coming back into vogue,” AET senior technical manager Julie Steed said.
“When compared to super, investment bonds offer flexibility and control.
“They also offer tax advantages when compared to personally held investments.”
Investment bonds provide an alternative tax-effective structure to supplement superannuation.
No personal tax is payable on distributions after 10 years or on the death of the life insured.
Additionally, they can be bequeathed directly to a beneficiary without passing through probate, thereby avoiding delays and any potential challenges to a will.
Investment bonds offer an effective wealth accumulation vehicle as they are not subject to super contribution caps, they allow a wide range of investment choices and there are no restrictions on withdrawal prior to preservation age.
“For example, a member who has $2 million in super and is age 65 probably doesn’t have any financial dependents in many instances and may not have any debt,” Steed said.
“They may decide that they’re happy for their spouse to receive $1.6 million as a death benefit pension. The balance above $1.6 million is withdrawn and placed in an investment bond.”
This way, the use of investment bonds not only avoids the impacts of the $1.6 million transfer balance cap, but has the additional benefit of providing flexibility and control in estate planning.
This aspect is particularly important where there may be some disagreements within the family about the will, Steed noted.
“Even if they’ve got a good will, things might get tied up while the family disputes various aspects of the will,” she said.
“We’re seeing a lot of interest in grandparents taking out of their super account multiples of $50,000 for their grandchildren and putting them in an investment bond so it doesn’t form part of the estate assets.
“If the nominated recipient is alive, the benefit is paid without any delays or challenges to a will.”
