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Effectively manage income distributions to beneficiaries and assessable income levels within a trust



A private, discretionary or family trust can reduce its distributable income if invested in an investment bond. Unlike other investments such as shares, managed funds and term deposits, investment bonds do not distribute ‘taxable income’ to investors unless a withdrawal is made within the first 10 years.

There is also no personal capital gains tax consequence when modifying the trust’s investment strategy when invested in an investment bond.

While the trust remains invested in the investment bond, there is no annual taxable income (from the investment bond) that the trust is required to distribute. 

As such, investment bonds are used to solve the common problems for family, discretionary and testamentary trusts of limited beneficiary capacity and the short-comings of tax deferral strategies involved with distributing to so called “bucket companies”.

Improve your children’s income distribution with an investment bond

There are a number of circumstances when you might need a solution to distributing income from your trust. As an example, as your children become adults and start to increase their earnings, their income distribution from the trust could push them into the next tax bracket.     

However, when the trust invests into an investment bond, you can opt to keep the money in the bond without any distributable income. Outside of the investment bond, a trust would be required to distribute income each year, or if not distributed then the amount of tax paid can be quite substantial. 

Prepare for home-care costs with an investment bond 

Many high income Australians are retiring and starting to plan for home-care costs in the future. An increasingly popular strategy is to invest in an investment bond within a trust. 

Since home-care costs are means tested via an income test, this strategy can assist high net worth individuals to lower their home care fees by choosing to be in greater control of what their assessable income is each year.

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Find out more about how Generation Life’s LifeBuilder can help you simplify and manage income levels with trusts today.