Five questions about saving for your child
As a parent, you want to help your child get a head start when they’re older. And what better way than giving your child a financial boost? If you’re thinking about saving for your child’s future, should you use your own account or open one in your child’s name? Read the answers to these five questions and find the best solution for you.
1. Why should you put money aside 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?
2. Should the savings be in your name?
Imagine you deposit a monthly amount into a savings account in your own name. Although this money will be used to cover expenses for your child in the future, it 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:
- Saving money, and not spending it on anything else, requires discipline.
- The money belongs to you and must be declared in box 3of your tax return.
- If you give that money to your child in one go, you may be more likely to owe gift tax than if you spread those gifts over several years.
3. Should the savings be in your child’s name?
Many parents open a savings account for their child 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. That’s because you’re technically giving that money away – for your child’s benefit, of course. Everything you save is therefore always considered a gift to your child.
Three thoughts here:
- You’re giving 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 full access to the money when they turn 18. From that moment on, they can choose to save, invest or withdraw money.
- 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.
Many parents are terrified by the idea of their children gaining full access to money when they turn 18. Will they spend the money wisely? If your child misspends a small amount, it won’t cause too much harm, 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? To protect that money, you may want to delay the age at which your child can access the money. That’s where a gift under administration comes in.
5. How do you obtain a deed of gift under administration?
You are free to use our template to produce your own deed of gift under administration. It allows you to record key details like 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 from the risk of the savings being redistributed in the event of divorce or separation.
Our deed covers many situations, but it might not always be appropriate for you. This might be the case if you’re gifting larger amounts 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.
