Fingers in the Jam Jar

Hi Scott,

When kid #1 was born, I put $10,000 into an index fund for him. Kid #2 is now due and I’ve done the same. I have not set up the money in a trust, though. I DO NOT want to hand over the Jam Jar when they turn 18, unless the funds would help them with a home, business, etc. So do I have to sign them over at 18 to avoid capital gains tax? Or can I sign them over at 25, 30 or whatever?

Simon

Hi Simon,

Yes, if you bought them via a share broker, they’ll automatically transfer to your kids when they turn 18, and they’ll be free to cash them in and head off on a bender to Bali.

(An alternative to this is to purchase your index funds either in a family trust or via an investment bond, which allows you to nominate the age your kids can inherit the money.)

So you’ve just created a trust fund kid, right?

Wrong!

Here’s how I’m doing it with my kids.

Don’t hide the fact that you’ve invested money for them: it’s an awesome opportunity to show them how compound interest works.

But do let them know there will be NO handouts (and no Dad-sponsored Bali benders).

Instead, set up what I call the ‘Barefoot Ladder’:

Use the money to match them, dollar for dollar, for something they’re saving for: a car, a small business, a house deposit, plastic surgery (well, maybe not). Either way, you choose what it is — and they work for it. And the harder they save, the more they get.

Scott.