YOUR MONEY: Setting up a trading account for your child? Read this

This week, an FM reader asks how to go about setting up a trading account for your child. Do you set it up in their name and then buy shares on their behalf until they’re old enough to do it themselves? Or do you just set up your own account to hopefully trade to wealth by the time they’re grown? Also, if you have a trading account and want to leave its assets to your children, what do you do?

Answer:

At EasyEquities, we believe that setting up an account in your child’s name (opening a minor account) is beneficial for the following reasons:

• You can appoint yourself as the person authorised to act on behalf of the minor (as a guardian or parent);
• Your child cannot make legal decisions on their investment until they are 18;
• Your child’s investment(s) will be kept out of your estate, so if something were to happen to you their investment would not be subject to estate duty and other taxes. The investment will continue in their name; and
• As your child grows older, you will have the opportunity to educate them about the importance of investing and instil basic principles while you are overseeing their investment. Ultimately, you would be teaching them to be responsible with money and helping them develop healthy financial habits. And you will have fun learning and growing your wealth together.

This approach is a much cleaner method of investing for your children, as there is a distinct separation between their investment account and yours.

If you’d like to transfer your current investments over to your children, this will amount to a “change in beneficial ownership” which could trigger securities transfer tax and capital gains tax. 

You may prefer to keep the investments in your name, and transfer them into your child’s name upon your passing. Your investments will be distributed according to your will. You would need to ensure that you have clearly stipulated your intentions, and that you have nominated your child as a beneficiary of the investments (either to receive the proceeds from disinvestments, or to become the next beneficial owner). As mentioned earlier, certain tax implications will apply upon the transfer of the investments to your nominated beneficiary.

— Bongani Nhleko, EasyWealth

Send us your questions to yourmoney@fm.co.za