Testamentry trust paid into life insurance bonds for minors.

Discussion in 'Wills & Estate Planning' started by shelleykins, 17th Oct, 2019.

Join Australia's most dynamic and respected property investment community
  1. shelleykins

    shelleykins Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    98
    Location:
    Aust
    Hi my mum recently passed away and left a testamentry discretionary trust to each of her kids. She also set up Comminsure life insurance bonds for each of her 4 grandkids several years ago. I was wondering if the earnings from the testamentary trust could be paid to her under 18 grandkids at the tax free rate of $18200 PA and then invested directly into their insurance bonds (allowing for 125%rule), would the grandkids need to pay any tax at all?

    I have a 7 and 8 year old and was wondering if this was the most tax effective way for them to build a good nest egg for when they turn 25.

    Thanks.
     
    Scott No Mates likes this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,869
    Location:
    Australia wide
    see s102AG ITAA36 and get some legal advice. Minor children will be taxed as adults on income from a deceased estate.

    I don't know how insurance bonds work really, but think they can be tax free if held more than 10 years
     
    shelleykins likes this.
  3. shelleykins

    shelleykins Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    98
    Location:
    Aust
    Thanks Terry, you know we will be getting in touch again after probate is through!

    Yes I believe that insurance bonds can be tax free for minors providing that the 125% rule is not breached, and after 10 years but I'm definitely not an expert.

    I'm just wanting to check that there are no other government charges or other fees/taxes that I haven't taken into account or am not aware of. I'm hoping the kids can effectively pay no tax, providing the limits are adhered to but I was just wanting to check and was wondering if anyone else has used these two what almost feels like "double dipping" tax free pathways for investing for children (within the applicable limits of course).
    Thanks
     
  4. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    18,486
    Location:
    Sydney
    This is a common strategy. However care has to be taken with the owner of the bonds vs the insured life. If they die it can get messy. Advice from the insurer and also a lawyer would be suggested. The reinvestment capability can be very tax effective provided the 125% rule is not breached as this compounds the tax free benefit without triggers to punitive tax rates. But you may be diminishing the TT benefits and legal advice on this is important too. The insurer tends to manage the 125% limit. And its important to be diligent with the 12month date rule and set calendar reminders.

    Insurance bonds can be sold by the kids once they are adults perhaps prior to age 25 depending on how the policy is set. Legal advice and insurance advice on how to manage this is important

    Take care too with the policy issuer. Some insurers have come up for a lot of heat at the recent royal commission.
     
    shelleykins likes this.

PFA Property Expo is designed in a way that visitors can gather maximum real estate knowledge with added benefits. Different speakers will be presenting on different topics as where to buy, when to buy in this market...