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Highlights
- Investing in stocks could be an excellent gift for your children or grandchildren as they cannot invest on their own.
- In Australia, minors below 18 years cannot own shares.
- People start share portfolio for their children to provide them financial security.
Investing in stocks could be a great gift for your children or grandchildren as they cannot invest on their own. Many Australian investors like to start a portfolio for their next generation to provide them with financial security. Here the objective of an individual is to invest in securities for the long-term, compound the returns and have a decent sum of money when the child’s age is 18 years or the child/beneficiary has achieved a significant milestone.
Why should people invest in stocks for grandchildren?
As kids cannot make a correct decision at a young age, many parents and grandparents invest on behalf of their children to give them financial stability. If it is done in a proper way, stock market exposure can be an excellent investment as they can enjoy the effect of compounding dividends by holding stocks for the long term.
Is it possible for a child to own shares in Australia?
In Australia, as per the law, property such as shares, or any other asset can have two owners. One would be the legal owner and the other would be the beneficial owner. The legal owner is the person on whom the property is registered. On the other hand, a beneficiary is a person who would enjoy the benefits from the property. In this case, it would be the child or the grandchild.
Why should you invest in stocks for grandchildren?
In Australia, a child below 18 years cannot hold or own a property. It means a person below 18 years cannot be the legal owner of a property. An adult can hold shares until the child is 18 years. However, as the child receives the economic impact from the shares, it would not be incorrect to say that the child is the owner of the shares.
How can a person buy shares for their grandchildren?
Buying stocks is possible via a broker or investing via a public offer made by a company. In case a person is looking to buy shares of some companies and give them to their child then it is not that easy. Most brokers would not allow buying shares directly in the name of the child. Also, ATO doesn’t allow children to own shares.
There also involves higher tax rates on investment income earned by minors. Hence, anyone planning in this direction needs to look for alternative measures to purchase shares for children.
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What are the alternatives?
To purchase shares for minors, one can follow below steps:
- Open a share trading account: As the child cannot directly own shares, one can set up a stock portfolio for the child by opening an online share trading account. Rather than opening the account in the name of the child, one can open a minor account in their name & play a role of a trustee. Once the child reaches 18 years, the shares can be transferred to the child into a brokerage account in their name.
- There is another approach as well, where a person can invest in shares in their name through their trading account and once the child turns 18 years, the shares can be transferred by means of an off-market transfer. However, there is a certain fee that a person has to pay while gifting shares to the child in this process.
- Many people are new to the stock market and look to buy shares for their kids. In such cases, they can take some expert advice or can opt for Robo advisors. The person can sign up with Robo-advice service and invest on behalf of the child.
