On the eve of a new school year, Count Financial advisers will be reminding parents that the cost of their children’s education can be a major burden if not planned for, a message all advisers should keep in mind when providing a holistic advice service.
According to an Australia Institute survey of parents, only 11 per cent put away payments into an investment for their children.
Count’s senior executive Dean Bornor had some advice for consumers on the best ways to prepare for the cost of a child’s education.
Included in this were managed funds and shares, however he warned of the tax implications associated with income earned by minors and suggested parents put the investment in their own name to avoid high tax rates.
The same tax implications are associated with investment bonds, but Bornor said if the bond was held for 10 years or more, the earnings on the investment would only be charged a flat 30 per cent tax, instead of the normal children’s tax rates, which could be up as high as 66 per cent.
On the topic of education savings funds, Bornor warned of drawbacks, such as paying out less if the child did not attend TAFE or university, combined with high fees and slow savings growth.
As an alternative, he suggested a testamentary trust to distribute a parent’s savings to their children.
According to Bornor, a trust can avoid the high child tax rates, with the trustee legally obliged to act in the best interests of the beneficiaries.
Finally, he reminded parents of the importance of wealth protection insurance as a way of preparing for the unexpected.
