The taxation and other features of the modern Insurance Bond favourably positions it as an alternative vehicle to using a family or discretionary trust for some personal planning strategies.
Insurance Bonds (like the Imputation Bond) are the next best investment vehicle to superannuation and are experiencing a rebirth as a finance, tax and estate planning tool.
Life-Events Financial Planning
Imputation Bonds are ideal for meeting life-event objectives, such as creating specific-purpose endowments; for sinking fund strategies, repaying debt and in financing education or health contingencies. They can also assist with qualifying for various ‘income-tested’ government benefits and rebates.
Estate Planning
An Imputation Bond can be established with a Bond nomination that can work very much like a Will. For instance, a Bond nomination can specify how investments will be distributed in the event of death and can provide tax-effective inheritances for one or multiple beneficiaries, and even with differing entitlements.
Bond nomination’s “will-like” operation can also give a choice for either “joint survivorship” or “down-the-line” succession rules applying as between nominated beneficiaries.
There is also flexibility to structure investments to pass partially according to a Will and partially according to the Bond nomination. In most situations, tax-free distributions are made to beneficiaries which, interestingly, can include a private bequest to charities.
Tax Management Strategies for Family, Discretionary & Testamentary Trusts
Modern “internally taxed” Imputation Bonds, when held inside private trusts, can play a valuable role in managing a trust structure’s annual distributable income.
Importantly, this strategy can be a solution to often problematic taxation issues when private trusts lack individual beneficiaries and often have to resort to annually distributing to so-called “bucket companies”.
Creating Annuity-like Payment Streams
Imputation Bonds can be set to generate tax-effective “annuity-like” streams by making automatic monthly/annual withdrawals against the Bond’s value. Investors have total flexibility (at any time) to create immediate, or even deferred payment streams drawn against their Bond’s selected investment portfolios.
Alternative Investment Structures
The taxation and other features of the modern Insurance Bond can favourably position an Imputation Bond as an alternative vehicle to using family or discretionary trusts. They can also assist with the tax management of these types of trusts where there are problems of limited beneficiary distribution capacity, or where the family trust has been distributing (and locking up monies) in a so called “bucket” company beneficiaries.
Alternative Superannuation Strategies
For some higher taxed investors, Imputation Bonds can be an attractive, accessible alternative to non-compulsory superannuation. For others, they might be used to supplement superannuation in retirement – without superannuation’s preservation age restrictions and contribution caps limits. As stated earlier, Insurance Bonds (like the Imputation Bond) are the next best tax-sheltered investment vehicle for medium to long-term investing.
Foreign Resident Investors including SIVs
An Imputation Bond can be an attractive and tax-effective investment structure for foreign residents.
From 1 January 2015, a range of Imputation Bonds investment options are eligible investments for Significant Investor Visa (SIV) purposes.
Business Strategy Applications
Imputation Bonds can be useful and dedicated investment for long-service leave provisioning or as part of an employee retention scheme. They are also worth considering as a funding vehicle in succession planning applications.
Loans and Gearing
Use an Imputation Bond’s borrowing capacity as loan security. Tax deductibility of interest generally applies for loans used for business and investment purposes.
Creditor Protection
As an Imputation Bond is technically an ‘investment-linked’ life insurance contract, it can carry valuable protections against creditors in the event of bankruptcy.
Media enquiries:
Ross Higgins
Austock Life
Managing Director
t: (03) 8601 2056
m: 0407 567 774
life@austocklife.com
www.austocklife.com