Funding a Child’s First Home or Deposit… Avoiding the ‘overstayers’

Published at Jan 16, 2017, in Features

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.

S3 Consortium Pty Ltd (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 only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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