Investment bonds for kids?

[onion33]

I know this isn't the right space for this post, but hoping someone can help out.

I just read the Barefoot Investor's last post. It was talking about putting money aside for your kids. It said
"I?d suggest you open up an investment bond in your daughter?s name, which you can do without a tax file number. You can choose your investment option within the bond (choose Aussie shares with low fees), and you can continue your monthly savings plan, even easier, you can automate it. After 10 years the bond is capital gains tax free."

I currently put money for my son into a kids savings account. How do I set up/get one of these investment bonds? I don't know where to start.

 

[The Falcon]

Investment bonds are in fact a life insurance policy. They are sold by the likes of Comminsure, IOOF, AMP and the like.

https://www.commbank.com.au/personal/investments/investment-growth-bond.html

You don't need to use a planner - ie. Don't.

They are taxed internally at company rate, compound and are CGT free after 10 years. So yeah, Australian shares is the go as the franking credits will apply. A good product for the purpose given the crazy tax rates on kids.

as these are life insurance policies they also have other uses as well, particularly interesting for asset protection and perhaps some means testing - ie. Small business CGT discount $6M net asset test..DYOR etc

 

[onion33]

Damn. My son is only two so he can't get an investment bond according to below. Any thoughts on a Family Bond? I'll have to read up on this.

Option 1 - Investment Bond
If the child (or children) is aged between 10 and under 16, you can arrange for the child to invest in an Investment Bond, which is under the name of the child. The child is the owner and Life Assured under the Investment Bond. A parent's or guardian's signature is required for all deposits and withdrawals while the child remains under 16 years of age. The child attains full and sole ownership, control, and signatory rights at 16 years of age.

Option 2 - Family Bond
The second option is to invest on behalf of a child through our Family Bond. To invest through a Family bond, the child must be under the age of 16 when the Family Bond commences. The Family Bond is particularly relevant for children under the age of 10, who are excluded from owning an Investment Bond (and many other investments) in their own right.

Option 3 - Education Savings Plan
The third option is an Education Savings Plan. This investment is a specially designed investment product with tax smart features. Parents/Grandparents open the investment for a nominated child to fund education expenses. After a child is born, there is no age restrictions for this product.

 

[Paul@PFI]

Take care. The products you refer to are insurance products. Unlike "savings" products there may be no or very limited capital guarantee. Despite the appearance they aren't a form of "savings". Typically high entry / ongoing fees paid to agents are very common. Many insurers will retain the commission income regardless of whether there is an actual adviser being paid so don't think the DIY approach will save any $.

One of the simplest forms of kids savings long term can be a XMas club credit union account. You deposit but cant withdraw except at Dec each year. Annually in Dec reinvest the balance to a 12mth term deposit and start a new XMas account for the next year. The capital and annual deposits will be locked up so temptations to withdraw are removed. High interest. It builds great savings habits with zero costs and fees.

While balance is under $10K there is no tax issue. When balance approaches $10K consider a suitable growth investment.

 

[The Falcon]

Take care. The products you refer to are insurance products. Unlike "savings" products there may be no or very limited capital guarantee. Despite the appearance they aren't a form of "savings". Typically high entry / ongoing fees paid to agents are very common. Many insurers will retain the commission income regardless of whether there is an actual adviser being paid so don't think the DIY approach will save any $.

Comminsure .pds at below ;

https://www.commbank.com.au/persona...inted-forms/investment-growth-bond-CIL392.pdf

Comminsure provides capital guarantees. No entry fees. No advisor rebate unless agreed, this is in addition to fees. So yes, the DIY approach will save $$. Management fees between 0.80-1.30% pa which cannot be considered high in light of the product type.

a reasonable product.

I really don't care too much, but had to answer your negative generalisations.

 

[Paul@PFI]

You might want to read that PDS before putting keyboard into gear. There is NOT a general guarantee that applies to the product you indicate. The guarantee is limited to some investment options and the terms and conditions described on page 13 are clear that these guarantees have limits. Even comminsure are clear the product is not capital guaranteed otherwise. If market crash occurs investors can take losses.

Every product / provider is different. Good to see that adviser fees are borne by investor. Not all providers do this eg : tied agent insurers like AMP.

Of course the product may be unsuited for a stream of savings subject to the 125% rule.

 

[The Falcon]

You might want to read that PDS before putting keyboard into gear. There is NOT a general guarantee that applies to the product you indicate. The guarantee is limited to some investment options and the terms and conditions described on page 13 are clear that these guarantees have limits. Even comminsure are clear the product is not capital guaranteed otherwise. If market crash occurs investors can take losses.

Every product / provider is different. Good to see that adviser fees are borne by investor. Not all providers do this eg : tied agent insurers like AMP.

Of course the product may be unsuited for a stream of savings subject to the 125% rule.

lol, yes, its all there in the pds like I said. Choose one of the 4 capital guaranteed products, or don't. its up to the user. Of course there are limits and exclusions. My point is not all products are as dastardly as you suggest in your first post. Personally, I wouldn't bother with any "guaranteed" product and would go 100% Oz shares for this kind of product.

Your suggestion re savings account to $10k then a "growth" asset is all fine, but what growth asset do you put in the kids name at 8 years old? or do you put it in your name and then pay the CGT yourself when you want to cash out? this is what these products avoid.

 

[Of The Vultures]

This topic is of interest to me as well with two young ones. I wanted to buy shares and was looking into investment bonds to avoid the tax issues with children.

In the end I spoke to my accountant who said we should set up a discretionary family trust and purchase shares through that. When we're ready to pass the investment to the kids, we can distribute it to the person on the lowest marginal rate at the time. Set up and running costs are not insignificant though so it's not something I'll do for the sole purpose of an investment for the children.

 

[LinkedAdviser]

You might want to read that PDS before putting keyboard into gear. There is NOT a general guarantee that applies to the product you indicate. The guarantee is limited to some investment options and the terms and conditions described on page 13 are clear that these guarantees have limits. Even comminsure are clear the product is not capital guaranteed otherwise. If market crash occurs investors can take losses.

Every product / provider is different. Good to see that adviser fees are borne by investor. Not all providers do this eg : tied agent insurers like AMP.

Of course the product may be unsuited for a stream of savings subject to the 125% rule.

Recently joined so first post but I need to disagree here, I use these products for clients that want long term education plans for their children, I do agree they aren't for everyone and they need to be understood, I am under AMP and they don't add adviser fees in there at all, its normal MER for the product, around the 1.3% mark depending the investment option, you can also use defensive strategies as you can with Super and a Managed Fund but the end result if used correctly is far better than a savings account or managed fund, I have clients on different service packages pending their needs, in most cases there would be o additional fee charged for a product such as this, that is an option an adviser can pass on as I think ERKO suggested. Not sure on the negativity of these from you either as I believe they are a sound option used correctly, not really a great one for someone that doesn't know what they are doing though when you say not to speak to someone, contribution rules etc can unhinge the whole process so that needs to be very well understood or then it would be better in a savings account. My clients I am doing one for now, No way would they be able to get this right over time.

 

[Paul@PFI]

Recently joined so first post but I need to disagree here, I use these products for clients that want long term education plans for their children, I do agree they aren't for everyone and they need to be understood, I am under AMP and they don't add adviser fees in there at all, its normal MER for the product, around the 1.3% mark depending the investment option, you can also use defensive strategies as you can with Super and a Managed Fund but the end result if used correctly is far better than a savings account or managed fund, I have clients on different service packages pending their needs, in most cases there would be o additional fee charged for a product such as this, that is an option an adviser can pass on as I think ERKO suggested. Not sure on the negativity of these from you either as I believe they are a sound option used correctly, not really a great one for someone that doesn't know what they are doing though when you say not to speak to someone, contribution rules etc can unhinge the whole process so that needs to be very well understood or then it would be better in a savings account. My clients I am doing one for now, No way would they be able to get this right over time.

Yes - Agree...Client needs can make it a great product. Ditto annuities can be excellent for some self funded retirees albeit what appears poor returns.

 

[Terry_w]

This topic is of interest to me as well with two young ones. I wanted to buy shares and was looking into investment bonds to avoid the tax issues with children.

In the end I spoke to my accountant who said we should set up a discretionary family trust and purchase shares through that. When we're ready to pass the investment to the kids, we can distribute it to the person on the lowest marginal rate at the time. Set up and running costs are not insignificant though so it's not something I'll do for the sole purpose of an investment for the children.

This may be one way, but may not be ideal as the children become adults, marry, divorce, people die etc.

A seccond trust may be good - so they can take one each, but you have to factor in size, hassle and cost.