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Education Saving Structure

Discussion in 'Accounting, Tax & Legal' started by Beni050385, 24th Mar, 2012.

  1. Beni050385

    Beni050385 Member

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    Hi guys,

    I am 27 recently got engaged and all goin to plan will have a mini me within the next 3 years.

    I would like to start putting say $50 a week away saving for the little ones education, any advice on where and what products to put it in would be appreciated.

    Also any ideas on the legal structure would be great too.
     
  2. Terryw

    Terryw Well-Known Member

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    hi Beni

    Kids can only earn $416 pa and not pay tax, over that it is penalty tax. So it may be best to invest the money yourself and just keep tabs on how much is for miniyou and then hand it over on their 18th birthday - or other time you decide.

    You could set up a discretionary trust, which would be more flexible. That way you could distribute $416 each year to the child and this may save you a little in tax. You just have to weigh up the costs v benefits. You could use the trust for general investments too though.
     
  3. Beni050385

    Beni050385 Member

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    Thanks Terryw,

    Your reply is appreciated, as mini me is yet to be in any existence yet there is no way to distribute. Am I right in thinking that the trust would be best solution as when pregnant and for early childhood my wife to be wont be working it would be best to distribute to her?

    Only other thought running through my mind is for let's call it $2600 p.a going in initially the "earnings" won't be that high is it even worth setting up a trust when taking into account the trust would have to do a set of financials each year?

    Thanks again.
     
  4. Terryw

    Terryw Well-Known Member

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    A discretionary trust would allow the greatest flexibility.

    So if it was generating an income the trustee could distribute it to the lowest income earners to save or pay no tax and this could be changed each year.

    But, it will cost money to set up. Annual tax agent's fees wouldn't be too much but would depend on what the trust invested in.

    If you have other investments or cash lying around, these may be better put in the trust too.

    It all depends on your circumstances.
     
  5. Beni050385

    Beni050385 Member

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    Thanks again Terryw, There isn't very much cash laying around or any other investments as yet. This is the reason I wanted to start getting the education organised well and truely before birth.

    Is a trust still worth while if there was say only $2600 p.a going into a online savings account or do you believe it would be worth the individuals just paying tax on the interest earnt?
     
  6. Terryw

    Terryw Well-Known Member

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    $2,600 in a savings account may generate $130 pa in interest at 5%.

    Setting up a discretionary trust may cost $1000 to $2000 and annual tax returns $200 plus.

    Therefore it is probably not worth it.

    Why not consider opening a savings account in your name as trustee for child (after birth) and then reconsider when income reaches $416 pa because after that the child will be paying penalty tax rates.
     
  7. Beni050385

    Beni050385 Member

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    Thanks Terryw,

    If we were going down the trust avenue, would something like Discretionary Family Trust Fund - Cleardocs suffice?

    I am still thinking about options as at $2600 p.a obviously after the first year the income even based at 5% would then rise.

    Sorry to keep asking more and more questions I want to have the right setup so I can then just set it and leave it.
     
  8. Terryw

    Terryw Well-Known Member

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    You could get an online deed, but if you stuff it up there are serious consequences.

    for example see
    Aston (Aust) Property Pty Ltd v Commissioner of State Revenue (Taxation) [2012] VCAT 48
    Aston (Aust) Properties Pty Ltd & Ors v Commissioner of State Revenue (Taxation) [2012] VCAT 48 (9 January 2012)

    The guy had something like 67 trusts - but they were not set up properly so that meant they didn't 'exist' for land tax purposes in this case.

    Trusts are extremely complex - many legal and tax issues.
     
  9. Beni050385

    Beni050385 Member

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    WOW is all I have to say, I by no means would even consider writing the deed itself and in no way have either the financial backing or the vision to be completing operations of this size. I am simply wanting to invest for the education of my child (unborn)
     
  10. Terryw

    Terryw Well-Known Member

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    Something as simple as the settlor failing to give $10 as the settled sum to the trustee could mean the trust is not properly formed.

    Trusts are extremely complicated.
     
  11. Beni050385

    Beni050385 Member

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    Thanks Terryw,

    You have definitely pointed me in the right direction thanks, do you know of any products that have my situation of investing for children's education in mind?

    You seem to be in the know.
     
  12. Terryw

    Terryw Well-Known Member

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    No, don't know any products. I seem to recall Bankwest had some bonus interest account for children though.
     
  13. Beni050385

    Beni050385 Member

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    Hi Terryw, I have been doing a lot of research around trusts and want to ask you one more question.

    As we will not be using a corporate trustee can both myself and my fiancé be trustees and benificeries? If this is the case are there any restrictions?
     
  14. Terryw

    Terryw Well-Known Member

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    Yes Beni, you can have 2 individuals as trustees and beneficiaries - but they can't be the only beneficaries. You can't hold something on trust for yourself.

    But you may not want to have 2 trustees if you will be borrowing as it increases risk.
     
  15. Beni050385

    Beni050385 Member

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    Thanks Terryw, I will be going to the accountant but wanted the base info so we could ensure everything was correct.
     
  16. powerjen

    powerjen Member

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    Hi,
    Can I put in my two cents from the point of a mother and avid saver? I have the same goals (my daughter is 7) but I never considered a trust. I would if it was property and business, as the costs are far too high.

    I looked into Education savings schemes - too restrictive and they take a commission of course.

    If your wife is planning some time off / perhaps a part-time job, then it is wise to put the savings for the meantime into her name. I have bought a high yield ETF (exchange traded fund) and two shares in my name (as I dont pay much tax), and besides, the Dividends are already taxed.

    These are for my daughter's education. Some people say to put it in the mortgage but then how can you tell how much you've saved, and when it comes time to take it out you would be borrowing again.

    I also have a CW Netbank Saver linked with Childrens Saving Account which is 4.5% interest. This is convenient for when savings have built up and I want to buy more shares through Commsec. The BankWest one offers the best interest but I found it a hassle personally.

    My aim is to hold through thick and thin as I had a bumpy start with a resources fund.

    Best of luck :)
     
  17. Beni050385

    Beni050385 Member

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    Thanks Powerjen, your comments are more than welcomed. I resorted to joint account with Rabodirect as they are offering approx 6.1% on cash and managed funds with a buy in minimum amount of $250.