Australia is on the brink of the largest intergenerational wealth transfer in its history, with $3.5 trillion set to pass from one generation to the next over the coming 20 years. Yet many Australians risk seeing their wealth caught up in family disputes, delayed by probate, or reduced by tax inefficiencies – often without even realising it.
Estate planning has long been synonymous with a will – an essential tool in any estate plan. But according to the Australian Law Reform Commission, nearly 60 per cent of eligible Australians, or around 12 million people, have not prepared one. And even for those who have, a will alone may not be enough to ensure a smooth and timely transfer of wealth.
Even for the best-intentioned plans with a valid will in place, estate administration can be far from straightforward. The probate process, where a court validates the will and oversees the distribution of assets, can take months, sometimes even years, leaving beneficiaries in limbo and assets inaccessible during what is often a difficult time. And in recent years, legal challenges to wills have become more common, particularly in complex family situations or where significant assets are involved. Disputes are estimated to have increased by about 25 per cent over the past decade, with about one in ten wills likely to be legally contested. These issues not only create delays but can lead to legal costs that erode the value of the estate.
That’s why seeking professional estate planning advice is so important. Financial advisers, estate lawyers, and tax professionals each play a vital role in helping individuals navigate the complexities of intergenerational wealth transfer – to help ensure plans are effective and carried out as intended.
The increasing use of investment bonds is quietly re-emerging as a strategy among estate planning professionals – valued for their unique tax and estate treatment, and their ability to complement traditional structures like wills and superannuation.
Investment bonds have been available in Australia for almost 50 years and are gaining renewed attention from financial professionals for their role in estate planning. When a beneficiary has been nominated, investment bonds may be treated as non-estate assets. This means that proceeds can, in most cases, be distributed directly to the nominated beneficiary without going through the probate process – which may help to reduce delays, costs and administrative complexity.
Investment bonds are also distinctive from a tax perspective as they’re tax-paid investments, meaning earnings are taxed within the bond (at a maximum rate of 30%) and are not included in the policyholder’s personal tax return unless withdrawals are made within the first 10 years. Importantly for estate planning, if the policyholder passes away, the proceeds will be paid to nominated beneficiaries tax-free, regardless of how long the bond has been held, or the relationship between the policyholder and the beneficiary. The structure can support philanthropic goals, allowing investment bond holders a way to nominate a charity or company as a beneficiary, helping to ensure their intended gift is received directly with minimal delay, and without concern about challenges from family members.
Investment bonds can also offer control over how and when proceeds are accessed. Some providers allow conditions to be set such as delaying access until a beneficiary (referred to as an assignee) reaches a nominated age, particularly valuable when planning for younger or financially inexperienced beneficiaries.
With a staggering amount of wealth set to change hands in the coming decades, effective estate planning has never been more important. Without the right structures in place, families may face delays, legal disputes, or unexpected tax implications that erode the value of an inheritance.
This is particularly relevant at a time when superannuation, a core pillar of wealth accumulation, is facing potential legislative changes, with proposals to apply higher tax rates to large super balances.
Investment bonds are no longer a niche strategy – they are increasingly considered in modern estate planning. For individuals looking to complement their will or superannuation arrangements, they can offer additional flexibility and certainty around how assets are distributed.
Financial advisers play a critical role in helping clients assess whether investment bonds align with their goals, and how they might be integrated into a broader estate planning strategy.
