Why Wealthy Australian Families Rarely Invest in Their Children's Names (And What They Do Instead)
- 3 days ago
- 4 min read
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If you've recently had a child or grandchild, you've probably asked yourself:
"Should I buy shares in my child's name?"
It's one of the most common questions we receive.
At first glance, it seems logical. Buy shares, let them grow for 20 years, then hand over a sizeable investment portfolio when your child becomes an adult.
Unfortunately, it's rarely that simple.
Many Australians don't realise there are special tax rules for children, ownership considerations, and long-term capital gains tax implications that can significantly affect the outcome.
Interestingly, many financially successful families don't invest directly in their children's names at all.
Instead, they focus on building family wealth using carefully considered ownership structures.
Here's why.
The Biggest Myth About Investing for Children
Many parents believe investing in their child's name automatically means paying less tax.
In reality, Australian tax law contains special rules designed to prevent families from shifting investment income to children simply to reduce tax.
Income such as:
Dividends
ETF distributions
Interest
Managed fund distributions
Capital gains
may be taxed under special rules when earned by minors.
This often surprises parents who assumed their child would receive the normal tax-free threshold.
Wealthy Families Think About Ownership Before Investments
Successful investors rarely begin by asking:
"Which shares should I buy?"
Instead, they ask:
"Who should own the investment?"
That single decision can affect:
Annual tax outcomes
Future capital gains tax
Asset protection
Estate planning
Flexibility for future generations
Administration costs
Choosing the right ownership structure before investing can prevent expensive restructuring years later.
Option 1: Investing in Your Child's Name
There are situations where investing for a child may be appropriate.
Benefits may include:
Clearly gifting assets to the child.
Encouraging long-term investing.
Building financial literacy.
However, parents should also consider:
Special tax rules for minors.
Ownership documentation.
Future capital gains implications.
Whether the child gains full control once they reach adulthood.
Many families overlook these issues until years later when the investment has grown substantially.
Option 2: Investing in Your Own Name
For many Australians, this remains one of the simplest options.
Benefits include:
Straightforward administration.
Access to the individual capital gains tax discount where eligible.
Complete control over investment decisions.
The trade-off is that all investment income is generally taxed at your own marginal tax rate.
Option 3: Using a Family Trust
This is where many higher-income families begin to think differently.
A discretionary family trust can provide:
Greater flexibility over future distributions.
Asset protection benefits.
Succession planning opportunities.
Centralised family investing.
Flexibility as children become adults.
Importantly, a family trust isn't simply a way to save tax.
When used appropriately, it's a long-term wealth management tool that can adapt as your family grows and circumstances change.
Option 4: Investment Bonds
Investment bonds have become increasingly popular for parents and grandparents who want a simple, long-term investment vehicle.
Potential advantages include:
Simple administration.
Tax paid within the investment.
No annual tax return for the child.
Potential tax advantages after meeting qualifying periods.
Like any investment structure, they suit some families better than others.
Wealthy Families Focus on Generational Wealth
Perhaps the biggest difference isn't the investment itself.
It's the mindset.
Rather than thinking:
"How do I buy shares for my child?"
They think:
How do we build wealth for multiple generations?
How do we minimise unnecessary tax?
How do we protect family assets?
How do we pass wealth to children and grandchildren?
How do we avoid future disputes?
How do we create flexibility as our family grows?
These questions often lead to better long-term decisions than simply opening a brokerage account.
Common Mistakes We See
Every year we see families who unintentionally create problems by:
Buying investments before seeking advice.
Mixing personal and children's investments.
Using the wrong ownership structure.
Failing to keep proper records.
Ignoring future capital gains tax.
Assuming trusts automatically save tax.
Forgetting estate planning altogether.
Most of these issues can be avoided with proper planning.
There Is No "Best" Structure
One of the biggest misconceptions is that there is one perfect structure for everyone.
There isn't.
The right approach depends on factors such as:
Your taxable income.
Existing investments.
Whether you already have a family trust.
How much you plan to invest.
Whether the investments are gifts or family assets.
Your estate planning objectives.
Your long-term financial goals.
That's why personalised advice is so valuable.
Build Wealth, Not Just an Investment Portfolio
Buying shares is easy.
Building wealth that lasts for generations takes planning.
The right ownership structure can reduce unnecessary tax, improve flexibility, protect assets and make transferring wealth to future generations significantly easier.
If your goal is to leave more than just an investment portfolio, it's worth getting the structure right from the beginning.
How Dolman Bateman Can Help
Whether you're investing for a newborn, building a family ETF portfolio or considering a family trust, choosing the right structure before investing can save significant time, tax and cost later.
At Dolman Bateman, we help Australian families make informed decisions about:
Investing for children and grandchildren
Family trust structures
Tax-effective investment ownership
Capital gains tax planning
Asset protection strategies
Estate and succession planning
Long-term family wealth strategies
Our goal is simple.
To help you build wealth that benefits not only your children, but generations to come.
Book a Family Wealth Strategy Session with Dolman Bateman and discover the structure that best suits your family's goals.
Frequently Asked Questions
Can I buy shares in my child's name?
Yes, but there are important tax and ownership rules that should be considered before investing.
Is a family trust better than investing personally?
Not necessarily. A family trust offers flexibility and asset protection in many situations, but it also comes with additional compliance obligations and costs.
Do children pay tax on shares?
Children may be subject to special tax rules on investment income, which differ from the tax treatment of employment income.
Can grandparents invest for grandchildren?
Yes. Grandparents can invest for grandchildren using several different structures, each with different legal and tax implications.
Should I seek advice before investing?
Obtaining advice before purchasing investments can help ensure you choose the most appropriate ownership structure for your family's long-term goals.
Book a consultation today and start building wealth that lasts for generations.