There is something about wills which brings out the worst side of human nature.
People who under ordinary circumstances are perfectly upright and amiable,
go as curly as corkscrews and foam at the mouth, whenever they hear the words
“I devise and bequeath”. Dorothy L Sayers.
Mystery writer Dorothy Sayers hit it on the head when she described the affect that wills can have on people’s behaviour. But besides dealing with the emotions that emerge from will readings, wills themselves are far from perfect documents that assist the seamless transfer of assets from one generation to another.
Family behaviour re estate planning is not encouraging
In 2020, when the oldest boomers hit their mid-70’s, families will witness the biggest intergenerational wealth transfer in history (McCrindle Research).
Most (70%) of families fail to successfully transfer wealth across generations thereby losing capital. (Source: Preparing Heirs, Williams and Preisser 2012)
In 1993, the average length of a marriage that ended in divorce was 10.7 years. That is now 12.1 years. (McCrindle Research)
One in five will marry more than once. (McCrindle Research)
Wills and their problems
Wills have shortcomings that can often worsen the situation for testators and their beneficiaries.
- Wills meet short-term estate distribution objectives – many people think that is sufficient
- Wills cannot achieve lasting & inter-generational arrangements without setting up testamentary trusts
- Big risk if relying on children to maintain provisions and wealth for next generation(s).
- Wills do not easily cater for blended family arrangements.
- Wills require probate (prove validity) – cost, time & process.
- Wills (via probate) are in the Public Domain
But there are solutions, including the use of insurance bonds.
Bond nomination provisions work like a Will with assets passed to multiple nominees who are not restricted to family or dependants.
Insurance bonds can be set up with:
- Joint survivorship of nominated beneficiaries which means if a beneficiary pre-deceases the Bond owner, his or her share will be divided equally to the other surviving beneficiaries.
- “Down-the-line” which means that should a beneficiary pre-decease the Bond owner, his or her share is paid to his or her estate or a pre-nominated secondary beneficiary (e.g. grandchildren)
Bonds can also work in with a Will with proceeds in part going to nominees and in part to the estate.
They are confidential documents and outside of Will (and probate) and can be revoked or changed without family being informed.
Quick overview of Insurance Bond features:
- master trust structure
- tax structure- Nominal rate 30%
- actual rates 19-30%
- rebate- 30% in first 10 years
- no tax file number( TFN)
- no income or capital gains distributions
- switching without tax event
- life insurance contract
- life insured ( Tax free on death- no insurable interest requirements)
- transferable without tax
- Contribution limit- 125% rule applies.
- Any person or entity can own a bond incl. children between 10 and 16
- Use as security for a margin loan
Richard Atkinson
Head of IFA Product and Relationships
Austock Life Limited
t: 03 8601 2095
m: 0417 541 897
RAtkinson[at]austock.com
www.austock.com