How to give your kids $1million each!

[Brenda Irwin]

I have just finished reading "How to give your kids $1million each! (and it won't cost you a cent)" by Ashley Ormond.

While it predominantly explains a savings and investment strategy you can start on behalf of your kids, it also explains in depth, step by step all about investing in the Australian sharemarket. It is a fairly recent book and lists quite a few of our Australian companies and their past performances.

It explains everything you want to know when just starting out, from how to get an account going, tax implications, etc. I found it a very enjoyable read in very basic format which clarified a few of the niggling little questions I had in a concise manner.

The book also delves into investing in residential property and commercial investment. I recommend it as a good read for anyone.

 

[Ausprop]

I was really disappointed when i started reading this and didn't go past the few pages. It basically qualifies the whole thing by saying that the million $'s isnt till they are about 40 or something??

 

[Brenda Irwin]

I was really disappointed when i started reading this and didn't go past the few pages. It basically qualifies the whole thing by saying that the million $'s isnt till they are about 40 or something??

Ahhh, you should have read on. Once you got past all that stuff it got much better.

 

[Simon]

I was really disappointed when i started reading this and didn't go past the few pages. It basically qualifies the whole thing by saying that the million $'s isnt till they are about 40 or something??

I am 42. Wish my parents had read that book.

 

[marg4000]

Thanks for the info Brenda.

I have just checked our library website and put in an order for it (55c for them to get it in for me). Also saw same author has another book "$1 million for life : how to make it, manage it, maximise it " so I ordered that too.
Marg

 

[Ausprop]

I am 42. Wish my parents had read that book.

yeh but that's $1m in 40 years ago money - probably about 10 bucks!

 

[Ausprop]

Ahhh, you should have read on. Once you got past all that stuff it got much better.

i haven't given up and the wife keeps hasslign me for some feedback on it. I just got a bit bored and started reading other stuff but on your recommendation i will get back into it

 

[BayView]

Would it be a good bed-time story book for a 6 year old??

Too bad; he's getting it anyway.

 

[lindy0123]

I will get a copy and have a read thanks

Now if only someone could write that book "How to give your parents a $1 Million"...I'd buy a couple of copies

 

[Brenda Irwin]

I have not got the discipline to be diligently throwing money into my kids accounts a bit at a time unfortunately.

However I did open bank accounts for them (the ones which actually pay some interest) and they can logon and find their own account balances and watch the little they have grow.

I have also got tax file numbers for them.

I have also opened trading accounts for them with a sharebroker with my hubby and I as trustees.

That followed on to my children having Chess accounts.

Now we are all set, but $500 each isn't going to buy much yet.

What I really got out of the book was the hold your hand sort of way it explained different shares and how to go about buying them, and how they can grow in time.

I also found out from the ato, that even though my kids wouldn't earn enough in share dividends to even pay tax, and they certainly don't earn any wages yet to pay tax, they could if they owned franked shares claim the franking credits every year in a special way and receive a refund.

 

[grossreal]

hi all
no need for a book.
buy a commercial property for 1 mil fully pay it off.
you keep the income and let the kids equity lend off it.
and you are giving them a 1mil kick along and you have save the cost of the book.

 

[kaf]

Brenda, love your new avatar

kaf

 

[Brenda Irwin]

hi all
no need for a book.
buy a commercial property for 1 mil fully pay it off.
you keep the income and let the kids equity lend off it.
and you are giving them a 1mil kick along and you have save the cost of the book.

The $30 book is way cheaper than $1million commercial property. This is all about starting small and educating the parents and then the kids how to grow money, buy shares, and buy low cost residential. Once they have the basics, and have been investing for a while, then they can go commercial if they wish.
PS No way would I give my boys my equity. They might have gold digging girlfriends by then.

 

[Tizzy]

Four months ago I did a bit of a mean thing to my 15 year old. He was desperate to have a job so I made it a condition that he had to have two internet savings accounts plus a daily account and he had to divide his pay up religiously every payday.

I can't believe he actually kept it up! He puts 20% into each savings account and he knows he can't withdraw it unless he uses it for something likes shares or property, something with growth potential . The second savings account he intends using for big items like holiday spending or a car. Whats left over is the money he blows on movies, timezone, dark light etc etc.
I had to admit to him recently that he's the very first in the family to actually do this and as he's already seeing growth with his money so I think he'll keep it up.

How I wish I had done this 30 years ago.

 

[grossreal]

hi Brenda Irwin
the idea is not that they invest in commercial or for that matter resi
you do and lend them the equity.
and unfortunatley for gold digging girl friend you can steal equity and if you got you kids to setup bldod trusts for all there investments
that stops the gold diggers a bit.

as for the 30 dollars book being cheaper then a commercial in this market thats not right and here is why
that 30k( was going to pay for the book) its 5% of 600k
(and before you ask yes but the bank will only lend 75% of purchase price or valuation which ever is the lessor, you can use vendor finance or other equity lend against the example above but for this exercise will take it that the bank does 100% lend and the 5 percent that you have put in goes to the stamp duty as its around 5% of the purchase price and this is only an example of raw numbers)
so the 600k equates to two 47sq mtr units on macquarie street
with a 10.5% return
so the income is 63k or 31.5k each they pay all out goings( currently very achievable)
the cost of funds is 47.4k if you locked in bankwest 7.9% for 3 years fixed term loan( closes very shortly)
and if you have a ratchet ( my termenlogy) of 5% or cpi whichever is the higher ( my nor is min 4 and max at this stage 6%)
in 3 years
you have a income of 72.93k (5% increases annually)
and working on the valuation figure of 6.5% ( the normal thumb rule of a valuer) you have a cash income of 72.93 divided by 6.5% a value of 1.122 mil take out the 600k the original value
is 522k built up equity
so you have in one hand a 30 dollar book telling you how to possible make 1 mil
and in the other hand you have a commercial thats worth 1.22 mil and 522k of built up equity in it and 25k cash in our pocket as its a posi from the start.
and most leases are for 3 x 3 so the second 3 years if you lock it in again will give you the 1 mil and you haven't bought the book.
not sure at this stage if I would be a running to macquarie street or maquarie book shop?
just an example

 

[JIT]

and unfortunatley for gold digging girl friend you can steal equity and if you got you kids to setup bldod trusts for all there investments
that stops the gold diggers a bit.

Excuse me, quick question to GR.

If you already have an existing trust structure, can you add a blood trust on top of that?

Thanks,

JIT

 

[grossreal]

hi jit
yes you can but the issue then is that the first trust is the one that owns the property and the blood trust is just another trust member.
for distribution thats ok but not from a security position.
My view and this is only my view is that you should set up each investment on its own basis and the if you have the gold digger she is into the deal 50/50 with you and take 50% of the risk.
for assets that you already own and have not set it up correctly from the start pay out the money to change it as its alot cheaper then total loss.
pre nups are not worth the paper they are written on in the equity court and will cost alot more then to setup correct structure in the first place.
and it no point in buying a expensive water front home with the big plasm screen and then saying well I didn't know I was going to burgled no one said you need gates or a front door I thought it looked better with the open air no doors approach.
if its worth knocking off some will try to get it so you need to put those doors in place and thats what these structure do.
but ha thats just my view.

 

[lindy0123]

Hi Brenda,
Thought I would throw his one out for everyone - I rang the ATO to ask about the kids with share and totally different from what I thought.

So if I buy a parcel of shares for the kids in my name as trustee for the kids the ATO treats it has they are my personal shares as even though I have purchased on behalf of kids who are under 18 I am the one who 1. provided the money and 2. make the decisions.

If I want to then give the parcel of shares to the kids say when they are 25 they will have to pay capital gains tax on them at that time.

They tell me the only way for this not to happen is to purchase the shares in a trust.

Now I am a novice with this share thing as you know I have only started to read up on it all....thanks to your help. All I was trying to do was buy a small parcel of shares for the kids with a view of passing them on around 25 yrs old. They can start watching and buying the shares as well when they older as a way of getting involved. So what do you think - would you go to the trouble of setting up the trust ? is what I got told by ATO not completely correct? OR is there another way ? This does vary from what my accountant has told me so........who and what way is right for me ? Thanks all.

 

[Programmer]

So if I buy a parcel of shares for the kids in my name as trustee for the kids the ATO treats it has they are my personal shares as even though I have purchased on behalf of kids who are under 18 I am the one who 1. provided the money and 2. make the decisions.

Note: Below is not advice. Seek further clarification from your accountant/advisor/ATO before acting.

The ATO view it like this to stop adults directing income via their children. If you provide the funds, and/or you have "control" over the asset(s) then they're yours.

There is however, nothing wrong with kids placing gifts from grandparents, birthday money, et al. into savings accounts and then purchasing shares via a trading account in trust for them. They will be assessed individually. The availability of the low-income earners rebate would further reduce any tax payable (often to nil). Franking credits could also be claimed and paid back to them. The question for the ATO is "who has control", the parent(s) or child? If you keep the situation very "clean" this is a great way to save for the kids.

There is no need to setup a separate living trust for this purpose. If you act 'as trustee' that's fine (as long as you keep it kosher from the ATO's view). I think either the ATO were referring to what I've said above, or they've got it mixed up. However, check this out first - before acting.

If I want to then give the parcel of shares to the kids say when they are 25 they will have to pay capital gains tax on them at that time.

Yes, if you bought them and have control over them.

-----

I've had this book for a while and found it OK. Note however that there are some mistakes made by the author in regards to which bank accounts allow for 'in trust' accounts. I can't remember exactly which one(s).

Lastly, and depending on your income(s), it might also be worth investigating whether an insurance bond (for each child) is a better investment. This depends on your marginal tax rate and how long you've got.

Cheers,

PS. If you want to pursue the shares strategy above your kids will need TFN's (claiming franking credits etc) and the broker accounts will need to be opened with you as trustee (ASX does not allow minors to open trading accounts).

 

[ruroshin]

Give your kids a million dollars? I just finish reading another well known book, "The Millionaire Next Door" and it seems to advocate that you shouldn't be giving your kids too much financial aid because it makes them dependent on you and don't bother to become financially independent themselves.