# Custodial Accounts as Investments for Children



## Markjm (5 Nov 2018)

Hi All, 

I am looking to set up custodial stock accounts for my children. I came across Zurich's Child Savings Plus.

I am wondering if anyone knows if there are options or possibilities to directly setup custodial accounts in Ireland - I'd rather avoid Zurich's fees if possible. 

I was living in the US where it seemed straightforward to set such an account up. 

I'd very much appreciate any advice from someone who has done this before!
Mark


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## Marc (5 Nov 2018)

We get this question a lot.

I have two children myself and like you have lived elsewhere (UK) where setting up an investment portfolio for a minor is straightforward.

Your main issues include

Finding an account that will accept the minor has a beneficial ownership and will not apply excessive account minimums.

Maintaining control beyond age 18 if you use a bare trust, it’s their money and off to Ibiza they go!!!

Taxation
Anti avoidance provisions will tax a minors income as yours but bizarrely capital gains belong to the minor.

Finding an investment contract that qualifies for income tax and cgt rather than punitive exit tax.

If you have a decent investment portfolio (€1m plus) the best answer is almost certainly establishing a structure to own the family wealth, lash in a loan so that you can continue to benefit and let the gains accrue to the next generation at lower marginal rates of tax and with no capital acquisitions tax.

The alternative for the rest of us is to wait until I complete this piece of work....

Contracts with minors
Regarding contract law, the general rule at common law is that a minor does not have the capacity to enter a legally binding contract. There are two exceptions to this rule, contracts
for necessaries and beneficial contracts of service will be held to be valid if they are in the best interests of the minor. Contracts for necessaries usually include contracts for food, clothing and lodging; however, the courts have held that contracts for items regarding
education and further training such as school books and training uniforms and vehicles for work are also enforceable.

Such items were held to be necessaries in the following cases
 First Charter Financial Bank v Musclow ( 1974)
 Soon v Wilson (1962)
 Roberts v Gray

Beneficial contracts for services usually involve contracts for apprenticeships or contracts with agents or managers, and are only enforceable if they are to the advantage of and in the best interests of the minor.

The Age of Majority Act 1984 reduced from 21 years to 18 years the commencement of legal Adulthood in the Republic of Ireland.

So, if it could be argued that an investment contract is a "necessary" for a minor then the contract might be enforceable.
I am currently working through these legal precedents with lawyers with a view to establishing a suitable contractual solution.


Marc Westlake CFP®, TEP, EFP, APFS, QFA

Www.globalwealth.ie


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## Markjm (6 Nov 2018)

Thanks Marc for your thoughts on this. 

I'm not worried about what they do with the funds after 18 (so long as they bring me to Ibiza with them). 
The beneficial ownership issue is perhaps the stumbling block. 

I wanted to keep this separate to my own investment portfolio which is considerably less than $1m. 
I had hoped to set up individual accounts for each kid with a small initial sum and contribute monthly amounts thereafter. 

It seems Zurich's fees and similar make it more beneficial to simply invest the sums in my own portfolio and simply gift my equity or proceeds from the sales of this equity to my kids down the road. 
I had alternatively considered setting up a crypto-currency solution using an Ethereum smart contract which would release funds to each kids account after a certain age but this will take more time to technically put together. 

In the meantime, I wish you success with establishing a contract situation that will address this!


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## yygaurav (28 Apr 2020)

Hi @Markjm 

I am in a similar situation. I am looking to create a custodial account for my children. Did you find a solution?

thanks
Gaurav


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## davyselect (29 Apr 2020)

Hello Markjm and yygaurav,

Clients of Davy Select can open a Personal Investment Account for each of their children. A bare trust is used to ensure the assets are held for the benefit of the minor but can be controlled by Trustees until the minor reaches the age of 18. At that time the bare trust expires and the account becomes a standard account in the (formerly) minors individual name. A separate account must be set up for each minor. There is no extra charge for this service.

regards
davyselect


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## yygaurav (30 Apr 2020)

hi davyselect 

thank you. Can you please outline entry and maintenance fees? Also will the gain be taxed at source after every 8 years? 

thanks


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## davyselect (1 May 2020)

Hi yygaurav,

From a minor’s perspective they are taxed at 41% for funds and 33% on gains (same as adults). The guardian would be responsible for completing the return on behalf of the child. For income this is taxed on the parent or grandparent depending where the funds came from. Once the child reaches 18 it is then taxed on the child.

There are no entry/set up fees. There is a quarterly fee of €50 which is offset by the value of any commissions incurred during the quarter i.e. if you traded during the quarter and incurred commission of €20, the quarterly fee would be €30.

Best Regards
davyselect


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## yygaurav (14 May 2020)

Hi @davyselect 

thank you so much. I don't understand what is difference between fund fees and capital gain tax. It would be really beneficial if you can explain this with example  ( If I deposit 100 euros for 20 years, assume growth of 5% every year)

Example
Deposit per month = 100 euros 
Deposit per year = 100 * 12 = 1200 euros 
Fees = 50 * 4 = 200 
Gain in year (assume 5%) = 60 euros 
so on and so on

thanks


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## Steven Barrett (14 May 2020)

In the OP, the poster wanted to avoid Zurich's management fee, which is 1.25%. If your put in €100 a month and your fund grew by 5% each year, you would pay a total of €962 in charges over that period. That would include setting up the policy under trust, online access, benefit statements, administration and looking after taxation for you (you wouldn't have to do a tax return). The Davy equivalent would cost €2,000.

The % management fee for regular saver plans is much higher than for pensions or lump sum investments. That's because the amounts paid in are usually a few hundred euro, so they make very little. In the example above, the wouldn't have made €100 in 3 years. They are not making money on that policy in that time. 

Steven
www.bluewaterfp.ie


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## irishguy (14 May 2020)

Degiro will do accounts for minors. Not sure how it's structured legally. 

Also would it be possible to setup a pension for a minor? Anyone know who would support that?

I read article where if you invested c.15k lump sum at birth in a pension in the stock market it would provide something like 30k pa in retirement.


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