She's On The Money - Setting up investments for kids

Episode Date: March 2, 2021

Fallen in love with investing and want to use its power for your kids? We love your style. Join the girls as they chat why investing for our kids is such a genius idea, discuss what we need to be mindful of (hello tax) and detail how we can actually make a start. Don’t have kids? No dramas! There’s lots of investing chat in here that’s relevant for all ears.Joining you this Wednesday is Victoria Devine and everybody’s favourite human, Georgia King.Do you love the podcast SICK and want more SOTM? Course ya do. Join our Facebook page to share your money wins and money confessions, follow us on Insta for daily inspo to keep you on track and DEFINITELY subscribe to our newsletter https://www.shesonthemoney.com.au/newsletter the written recap of the pod's key takeaways, including some bonus bits you won't want to miss.Finally, if you're in a money mess and need help untangling the muddle - we've got you sorted - simply record your question and send it through to us at [e-mail] and you may just end up on the podcast!The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine is an Authorised Representative of Australia Pacific Funds Management Proprietary Limited ABN 34 132 463 257 - AFSL 339151.See omnystudio.com/listener for privacy information.

She's on the money. She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. I've never heard that before. Yeah, I say it so often, don't I? Okay, so we've spoken about investing a lot over the last month, but one thing that we are yet to have spoken about, perhaps ever on the show, is how to invest for our children

to give them a financial head start. My name is Georgia King, and joining me today to chat kids and investing is Melbourne-based financial advisor, Victoria Devine. Georgia King. Hello. How are you? I'm good. How are you?

It is very bright and very early. We've got more energy than we usually do. I think we do. Let us know if it comes through on the airwaves. Yeah, you're in for a good show, my friends. Let's hope so. Before we do get into it, V, I wanted to start a little bit differently. And I wanted to share a story from our community to give everyone an idea of why investing for our kids is potentially such a good option. Okay, I'm ready for this. So Kylie posted this in our Facebook group.

She started out by saving $2 a day from when her son was in the womb. and when that two dollars a very concerning way of saying it but okay what what else do you say i don't know i don't know when the i'm not gonna lie okay that's also weird i just get really uncomfortable with different terms about babies yeah just well girl you better get used to it because everyone is having them i know it's the season for the babies is it a weird thing to say like on the podcast publicly that there's been that there's been this shift in my life right so like when I was younger if a friend was pregnant you'd be like oh my gosh you okay and now it's like this mentality yeah it's a congrats and I'm so excited like I adore kids like I

I'm such a baby person like if you oh they're just the best yeah literally like my family can probably attest like the second I see their kids I'm like haha give me your babies yeah but I just haven't slipped out of the mentality that I'm no longer 20 years old and like don't get me wrong there are people in our community who you know decided to get pregnant 20 and that's great but when I was 20 that was the furthest thing from my mind and so now I'm like oh you did that on purpose yay like that's so exciting but yeah I think we're all going through that mentality of now our kids now our friends are having babies on purpose like that's a different mindset it's confusing but it's beautiful oh I'm so excited I'm so excited and our friend circle like my

friend circle is starting to have babies it's like the best thing ever because I get to hang out with them and then no responsibility yeah that's it the best kind of babies i love this little detour you're welcome but it is true what's kylie's story i was getting on okay yeah i want to hear kylie two dollars a day when her son was in the womb and when that two dollars turned into one thousand dollars that's over about 500 days whiz bang mass i did actually google that one thousand divided by two and then i was like hang on you know this g oh wow so when that money turned into one thousand dollars she put that money into shares so they added any bonus money along the way from birthdays christmases into the shares and grandpa also generously threw in 10 grand when

the baby was born in shares so thank you g uh the son is now 16 years old he has a very healthy share portfolio he paid cash for his car and he's in a very good spot to afford a house one day plus he has a plan to put three hundred dollars a week of his own earnings when he turns 18 into shares and he wants to do that until he is at least 35. From the advice Kylie and her son received, so they've seen a financial advisor, he is apparently looking at retiring with $60 million in the bank. V, do those numbers sound right? Because that sounds like he's going to be filthy rich and it doesn't sound like it was that hard to do it. It's a little bit more compressed, right? Like $60 million, it is possible because they've got a really long

time frame like if you are investing over 60 years which is essentially what they're saying like from that time that baby existed you are investing for them so they've got an 18 year head start on most of us because you're legally not allowed to start investing on your own until you reach the age of 18 if she had a thousand dollars 10 grand from grandpa at the start and then like let's say they were investing 300 a week because that's the example you gave right yeah yeah well that's his plan that's his plan but i don't know how much was invested during that time because even if you started with eleven thousand dollars at the start and then invested three hundred dollars a week at a 7.5 interest rate after 50 years you're sitting at about

8.9 million dollars ish okay as an investment which is obviously epic but money would double about every 10 years so that kind of doesn't stack up to me 60 million seems wild okay i don't know what he was getting for his birthday like was he getting cash some payments of like 20 grand each time okay yeah it just feels like a lot so maybe i'm not saying this story isn't true but i'm also going to make some assumptions that there might be some inheritance built into that and some other assets that we aren't aware of because you can't tell everybody in a facebook post exactly what things are made up of but that doesn't make it not true because I have clients who are in exactly that position too but like I like that and I like working it backwards exactly being really

realistic and not saying okay well if you turn 18 and had $11,000 as a minimum and then invested $300 a week like you're not actually going to get $60 million so but it'll still end up in a great position oh my gosh why we want to talk about a hundred percent and so that's the one thing that I want people to have in their heads right so we're investing not so at the end of the day we have a million dollars saved and we can start spending that million dollars it's so that that money creates money for us and that becomes our salary so if we just said basic five percent return because I'm wildly conservative like I do not like to overestimate things but if you have a five percent return on a one million dollar portfolio which is totally possible for everyone

to create at this age like if we are young we are millennials and we put our heads down we can create that that's a passive income passive income means income that we didn't have to lift a finger for that's a passive income of fifty thousand dollars a year at a minimum that's nice that's pretty that's pretty nice that is lovely and so if we could start creating this for our kids up front like we're giving them a massive head start it's not giving them a head start for retirement but the sooner they reach a point where they have a passive income life is easier so we're not talking about oh my gosh start investing for your kids so that when they reach the age of 65 they'll be comfortable it's what if you started investing for your kids now even for yourself now so that when

they're 30 and they're deciding to have their first kids they've got an extra passive income of 30 grand like how good would that be if you were on mat leave like we're not talking let's make ourselves ballers we're saying let's make ourselves really comfortable and give absolutely everybody the best chance in life because at the end of the day even if you invested and there was like a smaller passive income that could pay school fees that could pay something to create a more comfortable life for your child in the future and for me that's arguably the best way to give back like you could gift them things or you could give them the freedom of financial security into me I think that's that's a sexier present yeah for sure and I think the other thing

is that it's the old Vicky D saying like from little things big things grow I'm so done we've been thrown under a bus for that saying I clearly didn't coin it I just really like that saying and now every Friday drinks Ryan finds some way to put it on the pod but hey it is true do you think that that is a part of the reason that so many people in our community are starting to have this conversation because it's not just you myself and Kylie chatting about investing for our kids it's a really popular topic that we're seeing it is and it's one that I've had so so many messages about but I think this is one of those topics that I just want you to be educated on so if you don't have kids great that is a non-issue at all but all of these tips and tricks are applicable to you

when you're investing for yourself like once you understand investing it doesn't matter who you're doing it for it actually just matters what we're working towards in the end and obviously we need to talk about structures and the different ways to hold things because I think that's where a lot of complexity comes from and that's where we get a lot of questions from people in our community who are saying oh should I have a trust should I you know be investing in a bond should I be doing something different for my kids like how do I do that and I think that's what this podcast is about but it will also give you the knowledge so in the future when stuff does start to happen in your life and you do find yourself in a position where you're like oh i'd love kids like this can be part

of the story and this can be part of your future kids money stories and how cool is that to think that there are going to be future bambinis out there georgia who have little trusts set up for them or like little investment portfolios or mom and dad are killing it because we set them up right yeah how cool exactly so cute it is cool it is very cool uh okay i'm gonna skip us ahead a little bit here v how do we actually get started on this journey so gee there are actually a fair few different ways we can start to approach this and set this up it is not a one-size-fits-all approach it is actually a lot more complicated than that but at the same time we can distill it down and make it super easy so we need to start by assessing the length of time that you're actually planning

on committing to this investment for is this going to be because grandpa gave you 10 grand when the baby was born or a thousand dollars like that's obviously wildly generous but is that why you're investing or is it because you actually have a lump sum every single month that you want to invest if so what is that amount this is such a pressure-y conversation for a lot of people if you're on a low or a minimum wage and you've got two kids like don't feel like you need to set them up with an investment portfolio that is absolutely not an expectation but you are smart it doesn't matter how much you earn you can teach your children financial literacy you can teach them how much things cost you can teach them that investing should be a priority and you can teach

them all the basics that they need to know without even having to invest really it's not about how much you have it's actually about what you're going to teach them and that to me is the legacy we want to leave behind so yeah I think before we even talk about okay well this is a bond this is trust I want to just say we're here to educate our children because the more educated they are the better choices they're going to make for their financial futures and that's how we change a money story that's how we change a financial future that is what we do to actually have generational impact it's not about setting kids up so that they're entitled and have trust funds yes albeit I know they'd probably appreciate it yeah because i would sorry definitely uh back to timelines v so i'm

assuming our approach to how we're going to invest for our kids is going to be different if we have a freshie in the womb or a 17 year old that we're freshie in the room i don't know i can't wait till you have kids and see just how you refer to them it's gonna be delightful well it's a good 20 years away so don't you worry about that oh yeah sure sure they all say that and then everybody gets no um but yeah so what is the difference there it's really important for you to understand your timelines here so that goes back to why and we always say when investing why are you doing it is it to set them up for a successful financial future if so what does that mean does that mean you are setting them up to pay for their future car or their future school fees are you paying

for their future wedding are you buying them their first home like what does that investment actually look like and for the average Australian can we just actually preface that buying your kid their first home is not going to be an achievable thing to set a goal for but you definitely could help them to you know save some money or invest some money towards a deposit for a home because home prices are crazy so that might be a bit crazy to think that we could do that but each to their own everyone has a different money story but if we have a long time to invest like 10 years or more which arguably if you're having a baby they're not going to be able to invest on their own or even have anything important to buy when they're 10 when i was 10 i was buying bratz dolls so

same that was pretty important that was pretty important jasmine chloe jade oh my gosh ask alex my sister obsessed really yeah obsessed it was always weird how the whole feet could just be removed yeah that was weird that was strange all right a really cool thing to potentially consider is an investment bond so this is not like the bonds that we talked about on our bonds episode where you know the government issues a bond and you purchase one a bond it's a bit bigger than that and we'll do an entire episode on what this is and how it works but essentially it allows you to invest in a more tax savvy way to put it simply bonds are designed to be a 10 a minimum 10-year investment commitment and generally you don't make any withdrawals along that time and any earnings

that you make from that bond end up being tax free because it's in a different vehicle so it sits there and it is a little bit sexier a little bit nicer it's actually easier for you personally to do your tax return because you don't have to do anything for it whereas if you go and buy a whole heap of shares individually and you own them you need to you know add that to your tax return each year it's not that complicated I'm dramatizing how hard it is but at the end of the day it's important to know that your tax return would be easier and you could also invest in shares in a more traditional way which obviously has some benefits but also has the highs and lows if you have a moderate amount of time which arguably might be you have a 10 year old now and you want

to start investing for their future car when they turn 18 or you know setting them up for uni or whatever that looks like so like five to eight years or around that mark still definitely worth investing like we have impact over the long term our money is meant to double on average every 10 years so like that's pretty close to that you're gonna get some pretty sweet returns in that time but maybe an option like an ETF might be a little bit better because an investment bond might not be the right fit for you because of the longevity of it and we prefer to put you into an asset like an investment bond for a longer period of time and then if you're investing for the short term so between two and three years that's actually a lot riskier because we don't

know what the markets are going to do in two to three years and I think that for me it's not not worth it but you need to understand that you might not be able to pull your money out and have made a profit in that time so my advice here would probably be to incrementally add money to a high interest savings account if they still exist. I don't think they do. Can we just touch on that for a hot second because everybody you know she's on the money community this week has been like oh my gosh I can't believe it our bank has dropped their interest rate again as if our bank's personally victimizing them but it's not it's not what's happening like the RBA sets the interest rates that's why we have such great home loan rates at the moment the banks aren't choosing

to give you less because they just want to it's just not a profitable business model for them to give you any less they genuinely can't afford it so they are passing on the cuts that have occurred to them to you it is how it works and that's why a high interest savings account is just that like sometimes it is going to fluctuate you're not going to lose money in the same way you would if you had a investment portfolio but you're going to get a lesser return that's why it's lower that's why in times like this people do start turning to investments a couple of years ago like 15 years ago that's more than a couple but whatever high interest savings accounts some of them had eight percent returns genius that's why we all so for i'll get a high interest savings account like that

term's kind of going in the bin because i know that a lot of them are down to like 0.7 percent you're like oh that's not as sexy like that's not keeping up with inflation like victoria says it should and we look for alternative assets so i think it's really important to understand that just because your bank has decreased the amount of interest they're paying it doesn't make them a bad bank like you've also got to take into consideration the fact that you're there because they are easy to access or you really like their app or you really like their customer service like these are the other things that come into play if you're just there for the high interest savings component like let's have a think have you got a million dollars in your savings account to make

it worth moving that or are you just chasing oh well they're at one percent and mine dropped 2.7 like you're chasing two or three dollars and what you don't remember there is you're going to pay tax on that as well so it's even less so at the end of the day i think it's really important to understand that savings rates are just that they are savings rates like we're investing for the future not saving for our futures because otherwise you just won't have the same amount to invest do you think it would be okay though if you did just have two or three years if your kid's 15 and you want to help them out with a car like could you put away ten dollars a week into savings oh yeah I would I would put it into savings and I term deposit yeah a term deposit is

a really good option again because the interest rate has decreased term deposits have also decreased but it's not a bad idea if you're putting money aside that is fantastic just make sure it's in the best possible vehicle and for me if you're going to use the savings account yes obviously get the best interest rate possible if possible it's not the end of the world if it's like a couple of points difference but make sure you don't have any fees because i don't care if it's returning two and a half percent but then it's charging you two dollars fifty a month like put that in the bin you're probably not making that amount on interest each month anyway so i think no fees is the best way forward for me and then just put it somewhere safe that it can slowly

compound over time my friends lovely so there are options i guess depending you could call them that the time frames that we're working with when it comes to how we actually get it done do we invest in the kid's name in our name in our partner's name what does that look like are you ready yes okay so you could do a couple of things the first thing you could do is open an online trading account for your child and you would then act as the trustee so trustee is kind of like the responsible person they're under 18 so they clearly can't have an account on their own and make their own decisions. As soon as the child becomes 18, those shares in that account get transferred over to them. It's very exciting. You do need to keep in mind that when it comes to dividends, which is

the money that your shares makes you and pays you for owning them, money win, if you own the shares then the dividends will need to be included in your tax return so you will be paying tax on those which could increase your income and it could result in you paying more tax. However, franking credits do mean that additional tax is probably not going to be a huge issue for you here regardless if you are in a partnership for tax purposes it's usually wiser to put the shares in the name of the parent who has the lesser income not tax advice just a hot tip that I'm sure a lot of accountants would say here is the important part of this though because so many people want to set shares up in their child's name because they're like no I want them to be the owner I want them to be

empowered and I want them to know it's for them I get that but if you choose to make your child the owner of the shares then any dividends that are paid need to be declared in a tax return for your child and they're going to need a tax file number so that all makes I think quite logical sense but the qualm of this of course is that if any income the child makes needs to be declared on a tax return they are actually taxed in a very different way than us as adults are because the government essentially wants to protect uh the government wants to protect themselves essentially by making sure that we as adults don't use our children as tax-free vehicles so they tax us incredibly highly so kids are capped at 416 in investment income and then after that their income

is taxed at a rate of 66 percent georgia which i would say defeats the purpose that is incredibly high please keep in mind the highest marginal tax rate in australia is 39 wow so when you compare that to 66 that is a little bit more right so that's wild and you need to take that into consideration and that is why maybe it is really important to potentially just invest in your name and just say hey child this is yours and transfer it to them when they're 18 keep in mind that if you do transfer it when they're 18 you might have to pay capital gains taxes because you're essentially transferring something yeah so you're selling it buying it yeah in saying that it just depends on how you're going to do it because essentially you can't just gift away shares you

actually have to transfer them and there are fees to be paid when you transfer shares from one person to another okay so would there be any benefit then v in this space looking at micro invest in invest in micro invest micro invest in platforms yeah so i think that there are a number of different platforms. They all have different benefits but we need to remember they are micro-investing platforms. They do not exist for you to invest in for the long term. I do think that they're changing the way that they see themselves though. They're going from oh I round up a dollar or two to like invest lump sums but I don't think that they are structured from the beginning to be like that. So when you compare it to something like superhero they're a little bit

more comprehensive. They give you more options. They give you the ability to like change what you're actually investing in and select your own portfolios and they have a really comprehensive platform that allows you to transact at a really low fee which starts to make you think well why aren't I using something like that instead of the micro investing platform where I just pick my risk profile and go oh I want to be moderately aggressive and that's you get what you get so you get more flexibility with something a little bit more comprehensive which I would argue is a little will be more empowering. But as I've said, I adore micro-investing platforms because I think it helps you dip your toes in the water with a few dollars to start seeing what the markets are

doing. You start to see the ebbs and flows. You start to see how the market performs, which by the way, it's starting to drop at the moment. I'm looking at even my micro-investing platforms and I'm like, wow, that's not nice to see. That is a couple of hundred dollars less than what I had the other day, which is stressful. But at the end of the day, that's part of the journey, right? and we want to be part of the journey so micro investing platform might be some way that you start to me i would want something more comprehensive for the long term that has a bit more longevity than going okay cool well i've got an app for my kid i want to be able to log in and actually have an investment portal where things are actually being bought and sold in a

bit more of a comprehensive way so that's what superhero can offer yeah superhero can offer that and obviously they're the partners of today's show but I would never talk about a platform if I didn't genuinely believe in them and when we started talking to them and I really liked it they approached me and they're like hey I want to talk to you about this and I was like oh people in our community have been asking about superhero and it gave me the ability to do a whole heap of research and yeah I really like them at the end of the day they are making investing a little bit more accessible a little bit more understandable and it's arguably a little bit more affordable as well. What do you mean by more affordable? So when we say more affordable it's all about

brokerage. So when you talk about investing and I think I've covered this a heap of times but I will sound like a broken record because that's how we do on these podcasts. At the end of the day you have to pay brokerage and that is when you buy and sell a share. So you would go and buy a share and say hey Mr Broker can you please purchase me 10 of X. They are brokering that deal for you and the platform has to transact and to buy and sell things on the ASX here in Australia you actually have to pay a broker like there's always a middleman of some form you can go direct shares but like usually there's there's fees involved so when I say it's cheaper I'm comparing it to the likes of like ComSec or like SelfWealth or these other platforms that people trade on and

I'm not saying they're bad but they have higher brokerage fees I think ComSec at the moment is $19.95 to make a trade and self-wealthy starts from like $9.90 from memory which at the end of the day doesn't sound like that much money right and if I if we said hey gee you've got a hundred bucks to invest you're like $9.90 I've got a hundred dollar ruse well that's actually nearly 10% of what your investment is so if we look at it in terms of a return you go well I've got a $100 Victoria and I go okay well $9.90 so 9.9% of your current investment is actually already going to be lost when you put it into the market you go oh so that means that you need to be making $9.90 or 9.9% in return just to break even on your investment to make it back and then you'd

want to make more and we keep saying things like oh the average return is 11% in Australia and I use between five and seven and a half percent depending on how I'm feeling that day as an example and the reason I do that is because that's just a bit more of a conservative option but if you're saying to me Victoria I've lost my nine dollars ninety because I use self-wealth or come second I'm not saying these are bad things we're just using it as an example this is just brokerage it is a thing that exists you're then telling me you need to make 9.9 percent plus the five percent i'm assuming so we're now at a really high risk profile we are now shooting at returns that are not common if you are just investing normally we are now expecting a 15 percent return

at a minimum wow like that's not normal well that's times three what you usually say is a conservative return right exactly so thank you so that's my rant about brokerage and why i think it's really cool that a platform like superhero exists one they're a pretty platform obviously aesthetics are really important but they start trading at five dollars and that's kind of cool because it makes it a little bit more uh accessible yeah and i like that i love that all right to wrap this all up you can head to www.superhero.com.au to find out more about our new friends from superhero or you can just click the link in our show notes now we will be back after a very short break to tackle tax and talk through the potential risks of putting

money away for our kids. Don't go anywhere. Now, guys, you're probably across it. We've mentioned them a few times, but if you're not already please join us on our facebook page which is heathen with financial heathen put me off why did i say heathen i'm sorry everyone i kind of want to have that left in there but yeah we're on instagram we're on facebook we're on youtube we're on tiktok and every single week g king writes you guys a love letter in the form of a newsletter it is a love letter it is a love letter you always write so beautifully honestly really yeah don't be silly everybody loves your work i cannot believe how many people actually read our newsletter like you'll click rate

stritch king very high stop you're a popular gal resume so we'll put that through yeah exactly we will put the link to the newsletter in our show notes because with all of the circus going on at the moment like with facebook not having news and now having news back and all of that yeah actually i think it's a priority for us and she's on the money to make sure that we actually keep building our newsletter and keep building that contact system for us because if we ever lose it like what if we got categorized as news like we're not but what if we did because so many people did lose their platforms during that little bit of a circus like that'll be where we communicate with you yeah yeah i don't want you to get lost you don't want to get lost and join us and it's got

all of our updates in there as well so it's a very good place to go exactly now i did some digging in our Facebook group, Good On You George, and found a comment from Michelle, who from the age of five puts money into a savings account each week for her kids based on how old they are. So Michelle isn't five, her kids are five when she starts this process. So $5 per week when they're five, $6 per week when they're six, and so on. And she's planning on doing this until the kids are 18, which I thought sounded like a pretty cool idea. But Vy, is there anything wrong with investing this way okay so this is where we are probably a little bit confused this is saving for your kids future not investing which is also very exciting but given your time frames i would

really recommend having a look into investing because at the end of the day the savings rates are not keeping up with inflation and you're actually going to be ending up with less money over time and now that doesn't mean some magical fairy is going to come and take money from your account and you know if you thought you had eight thousand dollars you now have six thousand like that's not how it works like you'll still have the same amount of money but it in the future will purchase you less which is why we want investment return so when we talk about inflation eating up your returns what we mean is like a loaf of bread the other week cost georgia king eight dollars rough yeah it was pretty rough but that loaf of bread in 10 years might cost 10 so therefore the

money in your savings account is now buying you less which is why we want to invest so that we one keep up with the rate of inflation which is on average about two two and a half percent but also get some more money so that our money makes us money and we you know create wealth but if they're six and you're investing for 10 plus years because they're not going to be accessing it until they're 18 like it seems like a no-brainer to really be interested in working out what type investment vehicle you could have because you could still have a super super conservative investment vehicle and be making like four or five percent and that's four or five percent you didn't have before and you can still sleep well at night uh okay i want to pivot here to

use the much overused phrase of 2020 and talk about family trusts oh yes okay you hear about these a lot but i don't know what they are that's because we're not born into wealth georgia like no trust funds for us but that's not just what it is so according to the ato a trust is an obligation imposed on a person or other entity to hold property for the benefit of its beneficiaries so well in legal terms a trust is a relationship not a legal entity trusts are treated as taxpayer entities so they're treated as their own individual person right but they're treated that way when it comes to tax admin so they have their own tax return so the trustee is then responsible for managing the trust tax affairs so when we said trustee earlier trustee is the person responsible

so you have to do the tax return for that trust including registering that trust in the tax system and lodging tax returns every year and paying some of the tax liabilities if they exist does that make sense so far is that just one person that's the trustee yes okay yes it could be like you can do a lot inside a trust but at the end of the day yes you would nominate one person who's responsible for that and then a beneficiary which i just feel like there's so many fluffy words in finance that just makes sense it just recipients yeah it just means the people that are nominated to benefit from that trust right so if you're the beneficiary you are the individual who would benefit from it and beneficiaries include their shares of the trust's net income as an income of

their own tax return so like if you are the beneficiary of that trust and you earned 50% of it therefore you would have to declare 50% on your tax return and you get taxed the same way yeah you you become intertwined in a way and you have to declare it's like an interdependent relationship hang on so so you've got this trust and you've got Janine who's 20 she's on minimum wage and doesn't get taxed that much and so that's the daughter and then you've got Papa Jean jean and janine what is happening papa jean who's on like 200 200k nice yeah nice and he gets taxed quite a bit so then whatever they make from this trust yeah gets spewed to both of them and then they'll get taxed differently at their tax rate because of the dividends so dividends are income

yep and if you don't have an income or you have a very low income you'd obviously be taxed at a lower tax rate than papa gene who is at the highest marginal tax rate because he's earning more than 180 a year sorry papa gene yeah i know but also the great example papa gene like that's a guy right yeah yeah he called his daughter janine i know you can't do that you can't rhyme your name with oh my name's gene i'm gonna call my kid janine like no lucky he's not real if your name's Janine your dad's name's Jean I'm sorry yeah no but there are some special rules there and it's really important to understand that lots of different trusts exist and I might do in the future a very niche episode because I don't know how many people are interested in learning about

it but there are a number of different trusts and the important thing to understand is you'll get taxed in a trust at you know your taxable income but there is a thing called a testamentary trust versus a family trust and things do start to get a little bit complicated but a testamentary trust is a trust that's created by somebody's will so it is a you know you might say in your will oh i want to create a trust and in the trust will be all of my money and i want it to go to georgia but i want it to stay in the trust that does not take effect until after that person who created that will dies so a testamentary trust can only be established on death which is a bit crazy but it's also a way that a lot of people inherit money now there is a very very big benefit of

a testamentary trust which i've actually seen a lot of clients recently i don't know where they're getting their advice from but a testamentary trust if you've got one is special like it is so so special because it has different tax obligations and essentially it is not taxed in the same way and you can distribute income from that trust to minors and to other people without paying that 66 tax rate so there are a lot of benefits and i have actually spoken to clients more recently who have taken on who say you know they've been through some really terrible stuff like a parent might have passed away or a grandparent might have passed away and they have a very significant inheritance and then we're like yeah yeah i just pulled it all out of the trust it's sitting in my

bank account and you know i got rid of the trust oh my gosh like that's such a powerful tool because that can then benefit your babies in the future so if we're investing for our children and you somehow end up with a testamentary trust you hold that close okay because you can't just get one someone literally needs to die to establish one so if you have one that is very helpful now i have my final question for you here victoria no more trust questions no more trust questions unless you've got anything else you want to say trust can hold anything actually that's a very exciting thing to put in there like what so you can hold obviously shares money cash you could put properties inside a trust you could have boats you could have businesses you can have

businesses but i also have a client who has a vintage wine collection in his trust oh wow that's fun he also has like a vintage car you can put anything in your trust okay exciting and if you do want to look at setting that up that's a trip to the financial advisor uh no so i as a financial advisor can't establish one but i can recommend that you have one and then we need an accountant to facilitate that which is why if you've got a financial advisor having an accountant that you can talk to that gets along with your financial advisor is really important because they work together yeah in a little bit of a partnership okay well that brings me to my final question for today what is it jay king so i feel like some people listening may think that there could be a

risk in setting our kids up so well so young is there a risk that they could become slightly entitled or not really understand the worth of money is that something that you see ever or do you think this is just a really good idea well we're millennials aren't we already all entitled well yeah yeah so i guess that's the answer like no problems we know i think that that's a really important thing and that's where we need to teach kids the value of money i also think there are probably a heap of people listening who go victoria i can't afford to do that for my kid like that sounds so nice am i letting them down by not doing this no absolutely not but you are letting them down if you don't teach them about money so you don't need to have money to teach

about money and you don't need to be investing for someone's future from your own pocket to teach them that investing is a priority so i talk to people all the time i have so many people who are under 18 in the she's on the money community which is crazy who dm me like oh my gosh victoria I can't wait until I turn 18 and I can start investing like that's what we want to hear we're not expecting somebody to set us up but if you do I think getting your child interested in finance and showing them the ropes is a really really great way instead of just gifting them 20 grand but teaching them about shares and the reason we invest and the reason we donate to charity and the reason we do things is really really important and if they're part of that

process when they get to 18 maybe they'll say no no no mom I don't really want to sell that down I want it to invest and you know have the opportunity of growth in the future instead of them getting to 18 and being like sick i've got that lump sum i'll pull it out and spend it on a car what you actually want them to do is make a decision about their investment portfolio okay so i guess the moral of today's show is talk about money with your kids talk about money with your kids and it's a really awesome opportunity not only to foster that wealth for them for when they do come of age but to teach them about money absolutely and if you are going to invest with kids have a look into an investment bond that could be a really great way to invest for their

future also investing under your name might be a better way to make sure that they're not paying ridiculous amounts of tax but i think it's all really important at the end of the day something that is so simple can be quite complicated but learn the different options and then pick one that's right for you and just stick to it i think that is all we have time for today v yes absolutely it is but just before we head off we'd really like to acknowledge and pay respect to australia's aboriginal and torres strait islander peoples they're the traditional custodians of the lands the waterways and the skies all across australia we thank you for sharing and for caring on the land which we are able to learn we pay our respects to elders past and present and we

share our friendship and our kindness and don't forget guys that the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money, exists purely for educational purposes and should not be relied upon to make an investment or a financial decision. And we promise Victoria Define is an authorised representative of Australia Pacific Funds Management, Proprietary Limited, ABN 34132463257, AFSL 339151.

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