Five questions about saving for your child

Tuition fees, driving lessons, buying their first house... as kids grow up, they get more expensive. Very expensive.

Unfortunately, these aren’t the kinds of costs that most people can cover from their monthly salary, so it’s a good idea to start saving up over the long term. But should you set up an account in your own name or your child’s?

If you set aside some money for your child every month in your own savings account, that money is and will remain yours. If and when you give the money to your child is up to you. This may be some point in the future when you think the time is right. Three thoughts here:

1. You need to have the discipline to keep on saving and not spend the money on anything else.
2. The money belongs to you and must be declared in box 3 of your tax return.
3. If you give your child all the money you have saved up in one go at some point in the future, you may become liable for gift tax sooner than if you spread the instalments over the years.

Parents often open an account as soon as their child is born. They then get into the habit of putting money into the new account. This situation is different from saving in an account in the parent’s name. If you put savings into your child’s account, you are actually already giving that money away, and it becomes their property. Everything you save is always considered a gift to your child. Again, three thoughts here:

You are giving the money to your child, but as a parent, you still have control over the money until your child turns 18. This means that you decide whether money is saved in a savings account or invested in an investment account, as well as whether any withdrawals are made.

Be aware that your child will have access to the money when they turn 18. From that moment on, your child will decide whether to continue saving or investing the money or whether to withdraw it.

For the purpose of income tax, your child’s assets are assigned to you, meaning you have to pay tax on your child’s money as if it were your own. As soon as your child turns 18, they need to submit a personal income tax return.

The idea that children will get access to the money on their 18th birthday is often daunting to parents. Will they spend the money wisely? If your child doesn’t end up making the best decision but it only involves a small sum of money, it might not be the end of the world, and hopefully they will have learned a valuable life lesson. But what if it’s a large amount that has taken you years to save up? For peace of mind, you might want to prevent your child from having free rein over the money at a relatively young age. That’s where a gift under administration comes in.

You are free to use our template to produce your own deed of gift under administration. You can find it in our article ‘Gifts under administration’. This document covers things such as the gift amount, when the administration ends and whether a successor administrator is appointed. An exclusion clause is included by default: this protects your child and the savings in the case of divorce.

Our template works well for a lot of situations, but sometimes things are more complicated: this could include gifting larger amounts and/or attaching specific conditions, such as a fideicommissum or a revocation clause. These clauses must be formulated carefully, and we strongly advise you to speak to a specialist such as a notary.