10K Inheritance Set and Forget

Discussion in 'Shares & Funds' started by albanga, 13th Dec, 2020.

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  1. BillyN

    BillyN Well-Known Member

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    IF you are on a high marginal tax rate (or even middle-income), an investment bond is seriously worth looking at. I have them for my kids and recommend to clients.

    It doesn't mean investing in bonds, you can invest in shares, it's a special tax structure with some asset control & protection advantages. Take a look at the link posted by albanga above.
     
  2. SatayKing

    SatayKing Well-Known Member

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    It could be an issue but only when it becomes one if ever. For example $10k will buy around 110 units in VGS which pays (unfranked) about $1.90 per year. Even with reinvestment, it's going to take a few years until the $416 threshold is reached.

    Placing funds in AFI will get about 1,300 shares and at 24c ff per share is $312 pa so still room to move. If DSSP not a problem really until or if they are sold then have darn good records.

    Somehow we seem to create a "problem" which may not exist for many.
     
  3. MB18

    MB18 Well-Known Member

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    Curious which insurance bond providor you use? I looked at them a couple of years ago and despite being on the highest marginal tax rate I was still better off with an index fund (difference was fairly trivial).
    The investment bonds lost thier competitiveness with thier management fees outweighing most of the tax benefit. There were advantages wrt to GCT discounts too that didnt exist with the investment bonds.

    If I was the OP and considering a10k investment: it's a respectable sum of money, but is it really worth some of the convoluted structures being suggested.
    Why not just put it into one low cost index fund under your own name, and cash it in in 20 years and give the money to the child.

    Sure, it may be a 'gifting issue'(?) but really... is it amount that's worth getting overly bothered about.
     
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  4. exp

    exp Well-Known Member

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    Spot on.

    Here's a good explanation

    https://www.millennialindependentadvice.com.au/post/22019-03-11-investment-bonds

    Basically due to the 2 points you mentioned - lack of CGT discount plus high management fees - insurance bonds are going to be worse than in your own name.
     
  5. albanga

    albanga Well-Known Member

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    Thanks so much for the great advice and input from everyone.

    @MB18 has pretty much nailed my sentiment. No doubt there could be a smarter way to structure this but I want pure simplicity. If I need to mess around with loan splits for tax benefits or trust structures the reality is it wall fall into the two hard basket and it will live in my offset.

    So I think based upon all the responses what I will do is have my wife buy the shares in her own name as she earns much less than me in planning for the time we do sell.

    We will buy through commsec and probably just split 50/50 between VGS and VAS.

    I’m sure there are plenty of holes in that plan but if those holes are a few thousand give or take them if fine with that for the cost of simplicity.
     
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  6. MB18

    MB18 Well-Known Member

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    You've basically described my own super allocation so hopefully the next 20 years prove a success.
     
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  7. albanga

    albanga Well-Known Member

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    Sweet!
    Maybe we can catch up in the Bahamas on our mega yachts and toast cristal to our investment success :D
     
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  8. BillyN

    BillyN Well-Known Member

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    These are fair points. If it's going to be $10k and no further contributions for 20 years, an index fund could be easier and it will be cheaper. The bonds I use charge 0.40% - 0.60%pa Admin fees.

    I wouldn't describe insurance bonds as being convoluted. You fill in an application form, and that's it. As it is internally taxed, there's nothing to enter into your ITR each year, so an ongoing basis it can be easier than investing directly.

    There are asset protection and estate planning advantages, which are important to some people. Again if it's just $10k, this may not be a consideration.
     
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  9. Swuzz

    Swuzz Well-Known Member

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    For 20 years set & forget I'd be going with a FANG / Nasdaq type investment.
    Certainly one that allows for the next big things to be incorporated.
     
  10. DoggaPP

    DoggaPP Well-Known Member

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    I use Australian Unity Investment Bonds for the legacy part of my portfolio. I use the underlying Vanguard index options. Very tax effective (for us) and also have significant control for estate planning (important for us) too
     
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  11. devank

    devank Well-Known Member

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    Never looked into the bonds. How does this work? What are the key pros and cons compared to Property/shares?
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    TAX Free.
    Estate planning and access to capital can be deferred and limited until a specific

    Bonds can be a very tax effective way to gift.
     
  13. exp

    exp Well-Known Member

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    They are NOT tax-free, they are TAX-PAID, meaning that instead of you paying the tax in your personal name, it is taxed internally at 30%.

    With the new tax rates being 30% from 45k to 200k, the majority of people will have a marginal tax rate of 30%, which is the same rate that investment bonds are taxed internally.

    The difference is that in an investment bond you lose the 50% CGT discount.