Hey All, Is their any recommendation or best practice for purchasing shares for your children. I would like to start building a portfolio for my daughter. The idea being once or twice a year I might purchase say $1,000 worth. Thanks in advance!
I got a Commsec account, it is pretty easy despite my techno deficiencies. Before my youngest turned 18 and wrested control from me I would buy a parcel of shares whenever she had a thousand dollars saved, she has a diverse little portfolio.
My suggestion: - On your kid’s behalf, start investing now, in the name of an individual/ entity that you might wish to own shares under, in the future. - When the kid starts to take an interest in investments / wants to invest themselves (but are still underage / studying) be open to their input, but still keep control of the (eg) CommSec account, - Once they are ready to manage their own investments, either: a) do an off-market transfer of the shares from the current entity’s ownership, to the kid’s name, OR b) buy the exact same portfolio in the kid’s name, and retain the existing portfolio (there’s a reason you invested in those shares, right???) PS This is exactly what we’ve done.
just invest the extra cash with your own investment and keep a tab on it when they reach legal age and you want them to have the shares you can just do an off the market transfer form buying a $1000 worth of shares is not worth it due to brokerage, you better off say you investing 15K and you have extra 1K for the kids buy 16K and the brokerage will be exactly the same. else you be paying 10-20 bucks for every $1000 share purchase also the tax complication with minor
Or c) Sell the existing shares, and gift the money to the kid to buy them back. This would be preferrable to a) because of the clawback provisions if something went wrong later on.
My son is 8yo and I have setup a Commsec Pocket under my name for him. I let him choose which shares to buy when his saving account reaches $500 from pocket monies, birthdays etc. Brokerage is $2 per trade. The good thing with Pocket is that there is only a handful of shares (ETF index) that he can choose from. When he comes of age, I can either give him the equivalent in cash/shares or do an off-market transfer as others have suggested above.
I think this is exactly what I mean by my (b) above...? ie it doesn’t actually matter if I do sell the shares or not, but regardless I’m still funding (ie gifting) the share purchase in kid’s name? What clawback provisions are you referring to?
If a child earns more than $416 in a year, they are taxed at 66% so you probably don’t want to put the shares in their name until it makes tax sense to do it. best to keep it simple and quarantine the shares you bought for them in your name / wife’s name / combined name and then gift it to then somehow in the future.
+1 for this - my exact process! I think this is the most elegant solution. No cgt, and control is maintained until the child is at competent investor age.
Incorrect and it defeats the purpose. There are free brokers, such as RAIZ, Commsec Pockect and Stake. You are much better to give the kid $50 a month to invest how they want. Over short periods some will go up will some will go down but after a decade probably isn't going to matter much what class of shares they invest in. It is the journey and thrills that's important. You can even get issuer sponsored share with no fees. My first purchase of shares was 5 pivot shares for 50c each. Yes $2.50. got blown away when they reached $50, they peaked at $180. My Stake account set up for kids has had 30% gains just this calendar year.
It is also good to use Stake because it give kids insight into how FX works and there are great companies that should be of interest to them such as Disney, Netflix, Google, Facebook, Tesla
Thanks everyone for your awesome responses! Sounds like I’ll setup a Commsec account under my name and keep tabs off investments I make for my daughter as I would also like to start my own portfolio as well. My thought process was to put them into something other than the bank and hopefully when she turns old enough she will be on her way to a nice house deposit. I hadn’t really thought about her taking an interest but that would be fantastic if she did! She is only 8 weeks old so not sure she is too much into picking shares just yet. I know someone mentioned it’s not worth the brokerage but TBH I would rather part with a brokerage fee then just keep the money in my bank account which I may end up just spending. I will be far less likely to be tempted to sell her shares to go on a holiday.
On death, bankruptcy and divorce assets transferred for no consideration can be clawed back Legal Tip 2: Asset Protection and clawback provisions https://propertychat.com.au/community/threads/legal-tip-2-asset-protection.224/
Depending on the size of the portfolio you could consider a discretionary trust to hold the shares. when the child reaches 18 they can demand transfer of title if the shares are held as bare trustee for them, but with a discretionary trust they cannot. You can control the trust and pass control over to the kid at a much later age - or perhaps only on your death, or when they buy their main residence. during their childhood you could receive dividends yourself and use these to pay off your home loan and reborrow to onlend back to the trust so you get the tax benefits and the trust gets the compounding. Where you have more than 1 kid you could do identical trusts to hold the same assets as that way it is easier to hand over control equally. You might even incorporate a bucket company into the mix. Also depending on your age you could use super. I have a client who used his parent as a super tax haven and the compounding on the shares was huge with little tax and then no tax and then inherit them back in the end. Huge asset protection and tax advantages.
There is no such thing as fee free, they pocket their fee either through spreads or through brokerage
