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Investment bonds offer a low cost estate planning solution

12 Sep 2016

According to Greg Bird, National Manager of Business Development, Lifeplan,  in the lead up to 2025 approximately $600 billion will be passed down as ageing baby boomers grow old and eventually leave their assets to their children and grandchildren.


With such large amounts of money at stake, baby boomers, and their children, are realising that their financial plans must also take in estate planning considerations. 

Along with large amounts of intergenerational wealth transfer, an ageing population also brings with it important social issues, such as aged care accommodation and health funding, which are also issues that financial advisers should be discussing with their ageing clients. 

Protecting the transfer of wealth from one generation to the next is a critical consideration. It is important to ensure the wealth accumulated by one generation is passed onto subsequent generations effectively, with a minimum of leakage due to careless financial structuring or beneficiary dispute.


With the rise of blended families, second marriages, as well as old fashioned sibling rivalry, estates continue to be challenged leading to outcomes that do not follow the wishes of those who have bequeathed the funds.

Why are estates being successfully challenged? Quite simply, a Will is not bullet proof; the courts are often in a position of authority to decide on basis of need and moral claim. This, along with the increasing number of estates that involved blended families, mean careful planning to ensure your client’s estate is distributed according to his/her wishes is more important than ever. Also to be considered is perhaps the biggest ticking bomb - the increasing incidence of dementia in elderly Australians, which can create a raft of problems where capacity and undue influence may be concerned.

Take for example the most common structures involved in present day estate planning for a typical “mum and dad” client. There are a number of options available, and they all have their benefits and shortcomings:

The Will

The Will must be current and valid to be effective. Issues to be considered include changes to family situation such as births/deaths/marriages/divorces? It is also important to ensure that probate delays and potential intestacy are taken into consideration in the planning process.



Superannuation has the advantage of allowing death benefit nominations; be they non-binding, binding, or binding-non lapsing. When it comes to superannuation, the tax implications for dependant versus non-dependant beneficiaries must also be taken into account.



Trusts can be quite tailored and specific, but can also be overly complex, expensive, and at times totally dependent upon the integrity and moral compass of those administering the Trust. Trusts are occasionally described by some estate planning specialists as the equivalent of “using a sledgehammer to crack a walnut”.

A frequently overlooked option in the estate planning process is investment bonds. Investment bonds (also known as insurance bonds or friendly society bonds) are a low cost flexible structure that can bring about very effective estate planning solutions.

Firstly, an investment bond is a tax paid investment, in much the same vein as superannuation, but without the hassles of the contribution caps and preservation restrictions that apply to super. Additionally, investment bonds pay the tax on the investor’s behalf at a rate that is capped at the corporate rate, currently 30 per cent. This rate is frequently significantly less due to the use of allowable tax credits and benefits – such as franking credits. Importantly, unlike superannuation where benefits are preserved, investors can still make withdrawals at any time for any purpose. Finally, once investors have owned the bond for 10 years, they are able to withdraw all or part of the proceeds free from any further tax assessment.


Where the investment bond really shines for the purposes of estate planning however, is in the area of beneficiary nomination. An investor can nominate beneficiaries within the account – including charities – to receive the proceeds tax free upon the investor’s death, irrespective of how long the investment has been in place. In this instance, the investment bond is considered to sit outside the control of the deceased’s Will so it is not subject to the usual delays associated with probate. Finally, the distribution of proceeds to beneficiaries nominated is very difficult – if not impossible – to successfully challenge.


The Lifeplan NextGen Investments bond offers all of the above estate planning features, and is an increasingly attractive option. And in addition to having a fully diversified investment menu to choose from, Lifeplan NextGen Investments bond is the only investment bond in Australia to offer Wealth Preserver.


Wealth Preserver is an Estate Planning feature where the tax-free proceeds upon death can be used to create either a deferred lump sum or an income stream, or even a mix of both, for any of the nominated beneficiaries.


While using an investment bond is not necessarily the panacea for everyone’s estate planning needs, it can be a simple and cost effective option. It can effectively transfer wealth between generations with minimal leakage and help ensure the funds are bequeathed in the manner they were intended.


In essence, an investment bond structure can be a low cost, flexible but highly effective estate planning solution.


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Greg Bird

National Manager, Strategy