Ask Paul: Should we use a super fund to invest for our son?


Dear Paul.

I'm 41, my wife is 40, and we have a one-year-old son. We put away $1000 for our son when he was born to help him out as a young adult, but we have been unable to decide the best way to invest this for him.

Given our age, we thought it may be appropriate to invest this in a separate super fund in my name as it will only be taxed at 15%.

paul clitheroe investing for kids

This way we can continue to add to it and we can access it tax free when I'm 60 as long as I'm retired. What are your thoughts on this? - Christa

Yes, that would work, Christa.

You could keep track of the value of your son's "notional amount" and withdraw that from super for him when you retire but, to me, it all seems a bit distant from your son.

I would much prefer you chose an investment for him. Heather (page 28) asks about investing in a Vanguard exchange traded fund; something like this with you or your wife "as trustee" for your son is, in my view, a good way to go.

My wife Vicki and I recently did this for our first grandchild, except we decided to go with a listed Magellan international fund. We chose the Magellan Global Trust (ASX: MGG) and invested in our names as trustee for our grandchild.

We'll transfer it to her, free of capital gains tax as she is the beneficial owner, when she is an adult, or this will happen through our estate. Hopefully the former!

I'd much prefer the child to have a direct link to the investment.

Don't forget, much of investing for our kids and grandkids is the experience they get as they grow older.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
david taylor
November 12, 2020 12.03pm

Great Question and interesting answer. I have heard this question quite a few times recently, as asset rich baby boomers retire and want to help their offspring . The 'Trustee' arrangement sounds interesting but an internet search on how to go about doing this - and if there is ongoing 'Trust' compliance fees - did not return any thing of use. Would be great to see a follow up article explaining the actual mechanics (and costs) of how you go about doing this arrangement please?