Insurance bond a tax-free option for descendants
YOUR ADVICE
I AM 76 years young and have a friend who is 69. I would like to ensure that her children (all adults) and grandchildren are left with something when she is gone.
If l purchase an insurance bond in lieu of an insurance policy on her life with her children as beneficiaries , does it have to be for 10 years? What would happen if she were to die within say seven years?
I am a self-funded retiree and pay minimal tax, but would like to know if there is a better way to cater for her future; she is on the age pension. What would be my exposure to income tax?
You would be the owner/ investor, as you are investing the funds, and your friend should be nominated as the life insured.
The children and grandchildren could be nominated as beneficiaries, in whatever proportions you wish.
Then, when your friend passes away, the funds would be paid directly to the beneficiaries tax-free regardless of the time the funds have been invested.
While the funds are invested, you would also have no assessable tax.
MY mother-in-law recently needed to move into aged care and needs to pay a Residential Accommodation Deposit (RAD) of $490,000. She can pay $240,000 of this, but needs to sell the family home to pay the balance.
Her husband has been in high care for several years.
The family home is worth $270,000, and being in a country town, may take some time to sell.
While there is a balance outstanding on the RAD she is paying a set interest rate of 5.6 per cent (the government set rate). We are able to cover the RAD balance until the property is sold and can do this as a loan to her.
She would then pay us back the loan. We have been told that when the home is sold our loan to her will still be considered a gift to her, or her asset potentially affects her pension. True?
Lending or giving money to assist in paying for aged care can have serious legal and financial repercussions.
For starters, the RAD paid to the facility is exempt from pension but assessable for aged care assets – so it can increase the cost of care through the Means Tested Care Fee.
The RAD is normally refunded to the resident’s estate when they pass away and we have seen instances (where there is no agreement) of beneficiaries arguing over the refunded amount (claiming it was a gift, rather than a loan).
From a pension point of view, a loan is an asset (although once placed in the RAD would become exempt) and can be repaid. A gift would be treated in the same way if placed in the RAD, however, if money was transferred to someone at a later date it would be considered a deprived asset.
Noel Whittaker is the author of
and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au