I have $200,000 in a term deposit for my five grandchildren, accumulated from inheritance and other sources over the years. Their ages are 26, 24, 22, and two are 21. I do not wish to give the funds to them yet and want more details about insurance bonds. If I held a bond in my name and planned to distribute it to my grandchildren in five years or upon my death, would this bond be considered a deprived asset for pension purposes? How would the interest accruing impact my tax or that of my grandchildren if I had separate bonds for each of them?

This is an unusual question because insurance bonds are normally used by grandparents to invest for younger grandchildren to avoid the punitive children’s tax on investments for minors.

But in this case, all beneficiaries are adults, so the income derived from gifts to them could be taxed at regular adult rates, with the 30 per cent tax rate only applying when income is over $45,000 a year.

When it comes to gifting money to your grandkids, you need to think carefully about tax implications – for both you and them.Credit: Dominic Lorrimer

The issue is that insurance bonds are taxed at 30 per cent on all income, making them less effective for adults unless they have high earnings.

Since you are a part pensioner with low taxable income, a better strategy might be........

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