Investment bonds – a low cost, flexible, estate planning solution

Since 2005, when the baby boomers started to age and retire en-masse, Australia has entered the beginning of a new era of intergenerational wealth transfer. It has been reported that 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 issues that many financial advisors are actively discussing with their clients.

Why are estates being successfully challenged? Quite simply, a Will is not bulletproof; 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 estate is distributed according to your 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.

Common estate planning structures

Take for example the most common structures involved in present-day estate planning for a typical “mum and dad”. 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.


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”.

Investment bonds as an alternative

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 keeping up to date with the constant changes. 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.

Investments bond are becoming an increasingly attractive option and offer a fully diversified investment menu to choose from.

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.

If you have any questions or queries about what you have read, particularly if you think an investment bond is something you think may be of use in your personal situation please always feel welcome to contact us at any time.

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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