Child's trust account $2k

Discussion in 'Sharemarket Investing Platforms, Tools & Services' started by mikey7, 16th Mar, 2018.

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  1. mtat

    mtat Well-Known Member

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    Maybe check this out: https://www.aussiefirebug.com/investment-bonds-genlife/

    I haven't listened to it myself so I don't know how useful it is.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Investment Bonds reinvest the annual income into growth and after 10 years the proceeds are tax free as the life insurer has paid the tax.

    There are a range of benefits
    - Tax free
    - Can be controlled and restricted until a specified date
    - Can be structured so when child turns 18 it can be held by them but not cashed
    - No CGT
    - Different investment strategies can be chosen
    - Can be added to each year !! Compounding benefit can be very good

    Its a wise strategy when older people seek to gift an inheritance to grandkids. Locks it up so its not at risk to the parents and doesnt produce a load of tax problems.

    Investment Growth Bond - IGB - CommBank
     
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  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Another advantage of investment bonds is that children get to control their bank account when they turn 14 :eek:

    Parent/Guardian etc is removed from access to the account at that age.
     
  4. Kelly88

    Kelly88 Well-Known Member

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    Thanks. Where can people buy those investment bond ? Tx
     
  5. Curious2019

    Curious2019 Well-Known Member

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    I think that one of the greatest gifts a parent can give their child is parents that aren’t stressed about money or their mortgage. I’m a big believer that putting money aside for kids is silly if you have consumer debt or mortgage that would get a better rate of return if they were paid down.

    Lots of parents want to save money for their kids, but don’t under estimate the lessons learned by kids that work part time jobs to save for their first car or other purchase. They won’t value it nearly as much if they didn’t work for it!
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Insurance companies
    Banks

    Google insurance bond ....o_O
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No.....The bond will have a defined date. Specifically most guardian could/should/may set the date at age 21, 23, 25 etc..Typically a bond must vest at age 25. It can occur earlier depending on insured's estate planning and executor. Legal advice is suggested to ensure this operates well. . Thes vesting ages are generally considered when an adult becomes more rational about making better choices. An insurance bond is not an account. It is a linked life insurance policy in most cases. It will have a defined term to vest. Many people split bonds so that some covers uni costs and the balance is held for later. So each occurs at different times.

    eg Read Page 17
    https://www.commbank.com.au/content...inted-forms/investment-growth-bond-CIL392.pdf
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    My comment related to the bank account not bonds.
     
  9. geoffw

    geoffw Moderator Staff Member

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    Agreed.

    Our daughters were put into a situation where they had to work in our fast food shop - and they were paid properly. Years later, they thank us for the work ethic and value of money which they learnt from the experience - something they've seen lacking amongst many of their peers.
     
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  10. Redwing

    Redwing Well-Known Member

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    Last edited: 16th Nov, 2019
  11. Redwing

    Redwing Well-Known Member

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    Just reading these 2 articles on investment bonds for kids

    This investor's not Barefoot, he's completely starkers

    Investing for Kids (The Good, the Bad and the Ugly) - Tasmanian Times

    Investing for kids (Part 2) - The Good, the Bad and the Ugly - Tasmanian Times

    Bill and Ben, Flowerpot Men

    Let’s talk about two good mates who own a flowerpot business. We’ll call them Bill and Ben.

    Business is good, and they want to put aside some money for the kids.

    Bill reads something in the newspaper about how investment bonds are great because you don’t pay capital gains tax and after 10 years, they’re tax-free. Se he puts $10K into a bond for his kids.

    Ben does some sums, and instead of an investment bond he puts $10K into an Australian shares fund in his name.

    Every year, Bill gets a statement telling me how his bond is going.

    Every year, Ben gets a tax bill, because the dividends from his fund are assessable in his name, and he gets slugged the top marginal tax rate of 47%.

    So Bill’s ahead, right? Actually, no.

    After 10 years, let’s see what the spreadsheet spits out.

    Trigger Warning – Numbers Ahead

    In 2027, Bill’s investment bond will be worth $16,538. He can withdraw that tax-free.

    Ben? His investment is worth … $20,135.

    Some of you are shouting at your screen ‘but that’s before Capital Gains Tax,’ and you’d be right.

    If Ben sold his investment and paid tax at his marginal rate of 47%, he’d still have $17,749, or about 7% more than Bill.

    But he doesn’t have to sell his investment. He can leave it, compounding away nicely.

    After 20 years, Ben’s got a tidy $40,626 for his kids, or $33,424 after paying CGT.

    Bill’s way back in the potting shed somewhere. His investment bond’s only worth $27,353.

    Okay, I’ve made some assumptions here, and any pencilheads reading can email me if they want a detailed breakdown. But here’s the guts of it: I’ve assumed both Bill and Ben invest in an Aussie share ETF, with 5% growth and 3% fully franked dividends, and they’re identical except Bill’s is held inside a bond. The bond has a management fee of 1%, and pays an effective internal tax rate of 23%.

    But Wait, There’s More

    You might not be earning $180K plus and paying 47% tax. If you’re an average Jo/Joe, you’ve probably got a marginal tax rate of 34.5%.

    If that’s you, after 20 years you’ll have far more than either Bill or Ben. In fact you’ll have $44,882, or $38,862 after tax.

    How can this be?

    Two reasons.

    First, investment bonds charge a management fee – typically around 1%, but often a lot higher. So for identical investments, you’re way behind as soon as you begin.

    Second – and it’s back to tax – investment bonds pay tax on your capital gains every single year. So rather than leave your gains to compound, every year you’re sending some of your savings off to the ATO.
     

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