Education bonds facilitate tax-free distribution of proceeds to nominated beneficiaries, sidestepping probate delays and expenses. This ensures direct, discreet transfer of benefits outside the Will, allowing flexibility for nominee adjustments. .

Funding an education bond can be done through:

Lump sum contribution involves investing a single "once-off" amount to establish your education bond. You also have the option to make additional contributions over time. Opting for a lump sum arrangement can be advantageous for those seeking to establish their education bond with a larger capital component to meet long-term educational funding goals. 

Savings Plan is the optimal method to establish a dedicated education fund for elementary and secondary school tuition. It allows you to invest and grow your money until a specified point, after which you can begin making withdrawals to cover educational expenses. The plan includes a feature enabling you to set a percentage (up to 25%) for automatic annual increases in your regular contributions. Your savings plan amount will grow each year on the anniversary of your education bond, and you have the flexibility to adjust your rate of escalation at any time.

Your bond's ownership can be configured to transition automatically from you, the initial owner, to other individuals, including your education beneficiaries. This transition does not impact the bond's benefits or its tax-advantaged status.

Your bond can be promptly transferred to others through the following methods:

• On a specific date in the future that you designate.
• Upon the occurrence of specific events, such as your death as the bond owner or when a predetermined amount of time (e.g. a specific number of years) has passed since your death.

You can use this feature to allocate specific inheritances for children and grandchildren, facilitating tax-effective intergenerational wealth transfers outside your will.

Accessing your bond and receiving payments comes with tax-free advantages. The capital component is always available for withdrawal, tax-free, at any time. Education benefit claims from the earnings component are tax-free for adults and minors within their respective tax-free thresholds.

For the 10-year advantage of the education bond, withdrawals from the earnings component become tax-free after a decade, regardless of the amount or timing. In the event of the bond's maturity due to the life insured's death, full benefits transfer tax-free to the bond estate beneficiaries. If the bond concludes at the end of its term, all proceeds distributed to you are tax-free under the Investment Bond 10-Year Advantage.

In certain situations, your financial circumstances may undergo significant changes, such as those arising from substantial debt, legal liabilities, or bankruptcy proceedings. According to Australian bankruptcy laws, education bonds receive specific protection from creditors due to their classification as life insurance investment contracts.

The bond provider covers the fund tax on your bond's investment earnings throughout its term, eliminating your need for tax reporting and payments. This benefits owners with middle to high tax rates, as the fund tax rates are generally lower. The value of education bonds doesn't factor into your annual taxable income, offering additional performance advantages through reinvested earnings and compounding.

Source: Australian Taxation Office (ATO)
*Income with marginal tax rate above 30%
**The above rates do not include the Medicare levy of 2%.

Education bonds qualify for favorable "scholarship plans" taxation when created solely for educational costs. Bond providers claim tax deductions for education benefits and pass financial benefits to recipients, amounting to an extra $30 for every $70 withdrawn. Benefit claims are tax assessable in students' hands at their marginal tax rates instead of being taxable income to the bond owner.

With education bonds, you have the flexibility to add to your capital or make tax-free withdrawals at any time for any purpose.

Optimize your investment strategy by choosing one education bond with multiple beneficiaries instead of investing in several bonds. This approach helps you avoid multiple fees and maximizes the investment income in a single bond.

In the event of your demise or if you face legal, physical, or mental incapacity, you have the option to nominate up to three bond guardians to act on your behalf as the bond owner. This becomes especially important as you can set the term of your bond anywhere between 1 and 99 years.

Bond guardians are obligated to prioritise the best interests of your student beneficiaries. Therefore, choosing someone trustworthy and competent is crucial. 

Bond guardians have the authority to carry out routine bond operations, including receiving reports and statements.