Funding a Child’s First Home or Deposit… Avoiding the ‘overstayers’
Published 16-JAN-2017 12:01 P.M.
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
A straight-forward strategy to assist children and grandchildren with a first home deposit by parents, grandparents or other persons is to invest a single lump sum contribution (e.g. $5000) in an Insurance Bond. The investment’s objective is for long-term accumulation for a dedicated purpose and the Bond vesting for a nominated child at a particular age writes Austock Life Limited’s Richard Atkinson.
For instance an Insurance Bond may be set to vest at his or her 21st birthday, or say age 25 as an endowment benefit for one, or a range of special intended purposes set by the funder of the Bond.
Alternatively, you might leave it to the nominated child’s own discretion whether the Bond is drawn-down, or for it to continue as his or her own tax-effective investment during its vested stage.
Funding a Child’s First Home or Deposit
Many parents are increasingly worried about the financial burden of their children who are financially unable to afford to leave home before age 30 or even later. An Insurance Bond can help as a dedicated investment to assist their children to meet the financial challenges of accumulating a first home deposit.
For grandparents, this is a simple and tax-effective way to set up a type of “directed” inheritance that can help with funding a grandchild’s first home, meet education costs, perhaps used to reduce a mortgage or a HECS debt.
Case study*: Turning $5,000 into a sizable part of the house deposit
Steve, an airline captain and sworn bachelor is the proud god-parent of best mate James’ first born, Stephanie. Steve wants to set up an investment for Stephanie to give her a financial head start in life.
Steve wants a “Set-and-Forget” investment where he doesn’t have to worry about tax administration (including paying tax on investment returns himself) and something that will automatically vest for Stephanie when she turns 21.
Steve decides to set-up a ChildBuilder and invests $5,000 under a Lump Sum Plan
Given the very long time-frame, he selects three Australian share based options from the Bond’s menu. He also sets a few Intended Purposes – overseas travel, a first home deposit, but is happy for Stephanie to decide how she might use her Bond.
Based on an average 9% p.a. after-tax rate of return (net of fees), Steve calculates that on Stephanie’s 21st birthday, the $5,000 invested in her ChildBuilder should be worth $30,544.
At this time Stephanie is able to access her Bond as a Tax-Free lump sum withdrawal or keep it as her own investment for ongoing access.
This case study is a hypothetical example and not meant to illustrate the circumstances of any particular individual. It is not based on actual or forecast investment returns for ChildBuilder Bonds. Past performance has been used in the illustration but is not indicative of future performance. Seek professional financial advice for further information.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.