Grandparents are increasingly utilising insurance bonds to leave bequests to their grandchildren that are beyond Will disputes.
Case study: Grandparents passing assets direct to grandchildren; bypassing their Wills
Seventy-year old Geoff slumped into the armchair and look resignedly at the ceiling. “No one ever said being a parent would be easy. But I thought being a grandparent would be a breeze,” he said in exasperation to his wife, Janice.
“What’s the problem this time, as if I didn’t know?” she asked.
The couple’s “problem” revolved around their son Clark who had two children, Sue and John. Since Clark had hooked up with his partner Carol 15 years ago, he had been a constant source of worry for his parents. Always a rebel, he had not become responsible with the onset of parenthood, and many was the time that Geoff and Janice suddenly found Sue and John on their doorstep when their parents disappeared for days or months at a time.
This time Clark had been dismissed from his latest job over allegations of stealing from his employer. Fortunately it would not mean withdrawing Sue and John from their private school, as Geoff and Janice paid those fees. But the couple was reviewing their Wills and wanted to ensure that Sue and John received a decent bequest to start their own lives.
Initially they considered a testamentary trust under their Wills but finding acceptable trustees – their son and daughter-in-law were out of the question – and the cost and administration involved discouraged them from going down that road.
As testamentary trusts often operate for long periods, it is essential to appoint willing and honest trustees. These trustees must be competent and knowledgeable about investments, tax matters and compliance.
Also legal challenges can arise due to disgruntled beneficiaries and others who are left out of the Will.
“Leaving Clark and his wife out, or with different entitlements, is almost certain to create problems for the grandkids,” said Janice. “I want the money placed out of the reach of the Will and beyond challenge.”
As an alternative, grandparents can use modern insurance bonds, also known as imputation bonds, to plan ahead about how, when and to whom their estate’s wealth (or part of it) will be distributed. Some modern imputation bonds have special design features for passing money cleanly to grandchildren that:
- Allow for multiple beneficiaries with different entitlements;
- Can be tailored for meeting small and large bequests;
- Are low cost; and
- Operate in a low maintenance “set and forget”, tax-effective environment.
At a meeting with their financial adviser, Geoff and Janice also discovered that insurance bonds are increasingly being used for making protected bequests.
“As insurance bond nominations can be set up as ‘excluded assets’ from legal estates, bequests made in this fashion can be put beyond Will disputes,” explained Wayne, their financial adviser.
Another result of using insurance bond nominations for non-estate bequests is that these can be made in secret because these types of inheritances are not subject to probate procedures (and costs) and hence, are not brought within the public domain.
“That’s a relief,” said Geoff. “It leaves it up to Sue and John whether or not they tell their parents about it.”
But the couple wanted to make sure that if the grandchildren received the proceeds from the bond while still at home and under the influence of their parents, that the money would not be frittered away.
After discussing their hopes with Wayne, Geoff and Janice set up an insurance bond for Sue and John as part of their estate planning.
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Richard Atkinson
Head of IFA Product and Relationships
Austock Life Limited
p 03 8601 2095
m 0417 541 897
e RAtkinson@austock.com
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