Best way to invest lump sum for each grandchild?

Hi,

I would like to make a lump sum investment for each of my grandkids (it will likely be around $50K for each of them).

I want to invest their money for probably 20 years (then they can use it to buy a car etc.). I will most likely invest their money in a Vanguard Diversified Index Fund.

I would like to deposit a lump sum for each grandchild and then forget about it (I would like all admin/management fees to come out of the lump sum).

Any thoughts on the best way to do this?

I do not have a family trust.

The grandkids may/may not be residing in Australia when they're old enough to inherit their investment (not sure if this makes a difference).

Suggestions made to me thus far include Genlife's investment bond and Australian Unity's 10Invest.

Someone else has also suggested opening multiple accounts in something like Commsec, and then assigning each account to each grandchild in my will. I haven't looked into this yet.

I would like to keep fees and complexity to a minimum.

Grateful for any advice.

 

Giving it to them when you are still alive, and giving it to them through your will / estate are very different things. Tax residency is important especially if through your estate.

 

So what is best? I'm hoping to be alive when I give it to them, but that's not something I control.

 

Given your level of assets, talk to a good lawyer.

 

Thanks, I plan to. I just want to explore my options first.

 

I found this...

Investment Bonds - A diabolically ineffective investment structure -

Investment bonds may not be a good option.

 

Not something that I am well versed in but I’ll have a crack. Firstly how many grandkids are we talking about. $50k each and depending on how many kids will give an idea of the total value. Depending on total value the options could differ.
For the sake of simplicity and keeping costs down why not just keep it as is and invest it in your name. If your around when it’s time to hand it out then go for it. If not then assign the amounts to them under your will. Even better look at the option of utilising testamentary trusts to hand down assets.

Since you don’t like trusts, another option is setting up a company to hold the investment. Again when it’s time to hand over you can cash out assets or just hand over the shares of the company so they can keep it going. If your not around, once again the handover can be done via will with the testamentary trust option.

Using vehicle such as a company will incur some additional costs, such as set up cost, annual asic registration cost and annual tax return for the entity. These costs will be incurred unless you just hold in individual name.

Estate planning lawyers might be able to point out other options but how much do you want to spend setting this up? Again depending on total value, costs might outweigh the benefits.

 

I was going to write something similar to the Big A.

If you want something you don't have to think about you could
a) invest in shares which pay bonus shares instead of dividends and do this as bear trustee for the each grandkid, separately.
No tax until shares sold. You can transfer ownership CGT free during your life. But can't leave it via your will.
b) invest in your own name for and leave a separate testamentary discretionary trust for each grandkit with equal shares.
A little more cumbersome perhaps and tax issues each year, unless no dividends.

c) incorporate a company and invest in that and let it reinvest the earnings and leave the shares to a TDT for each child.
or
d) as above but you could own the shares of the company as bare trustee for each child.

It will depend on a lot of stuff.

 

Is opening a superannuation account for the kids an option? I've asked our accountant about it today and she's getting back to me. I have no idea if it's really feasible but an extra 15 years compounding interest won't go astray.

 

Hi @Terry_w what if you accumulate LICS that offer BSSP such as AFI never sell collect the dividends until you drop of the perch would that then trigger CGT when left to your kids?
My understanding is normal shares would not trigger CGT upon death much like house etc but I of course could be very wrong?

 

anything passing via a deceased estate passed without triggering tax. It is only when the beneficiary sells it that is is taxed.

 

Yes children can have superannuation. Generally taxed at 15% going into though.

 

Capital gains event K3 when the beneficiary is non resident for tax purposes?

 

Thanks for sharing those helpful options. My FP actually recommended the investment bond option, but after further reading, it doesn't seem too great an idea.

Only two grandkids at the moment, but more on the way.

I really want to minimise set-up costs.

I think what you've recommended is the simplest and best idea ie. to invest the money in my name and then hand it down to my grandkids using a TT.

I just have to speak with my lawyer to work out how we can avoid CGT K3 event, as some of my children and grandchildren will likely be non-residents when they receive their inheritance.

 

Thanks for that helpful information.

I think I like option b) best. It seems the simplest. I will speak to a lawyer about it.

 

I don't think it's an option for me as I'm not certain where my grandkids will be residing (ie. which country).

 

If at the time you are still alive, giving the grandkids the equivalent of a midrange car each, with your assets, shouldnt be a big deal.

estate planning and wills would cover all your assets, which is worth paying good advice for. Make sure your executor knows the law etc, not just make your children joint executors because thats whats fair. If your executor is savvy they can be given more power to rearrange things. But that has its own risks too.

eg if some beneficiaries are non residents for tax, the rules arent obvious.

 

This is something I want to avoid. I believe it's possible to avoid CGT event K3 if the trustee of a TT is a resident. So I will likely have to appoint one of my resident children as trustee of the TTs for each of my non-resident children (and grandchildren). I am currently exploring this stuff with a lawyer.

 

Get advice, but K3 only applies to certain assets. It doesnt apply to cash, for example.

Be willing to pay for good advice. You dont know enough about it to talk specifics.

 

see

Tax Tip 156: Death and Leaving Assets to Non-Residents and CGT Tax Tip 156: Death and Leaving Assets to Non-Residents and CGT

Tax Tip 299: CGT Trap if Leaving Shares on Death to a Non-Resident Beneficiary Tax Tip 299: CGT Trap if Leaving Shares on Death to a Non-Resident Beneficiary

Tax Tip 300: Strategy to Avoid Triggering CGT on Death with Non-Resident Children Tax Tip 300: Strategy to Avoid Triggering CGT on Death with Non-Resident Children