Think about investments for children. You just can’t make money

For many years, parents have been accustomed to building construction savings for their children, and almost a hundred thousand miners in the Czech Republic also have their own retirement savings. With the investment boom, parents are increasingly interested in buying mutual funds, ETFs or stocks directly for their children.

Yes, a child can also have an investment account – although not all companies that sell stocks or funds to adults offer this. Whether you want to save more money so that children can enter their adult life in this way, or educate them financially from an early age through regular investments, it is useful to know the specific rules of children’s investments.

It is good to know that if you actually start an investment account with a child, the assets (stocks, participation certificates, etc.) will then pass to a newly adult child. Furthermore, the treatment of money in children’s accounts has its limits and often has to be decided by a guardianship court.

We will guide you through the question of children’s investments in the questions and answers. You will also learn how it is with taxation.

Does it belong to children?

Not all banks and investment companies offer child accounts. They are established, for example, in Česká spořitelna, ČSOB, Consequ, Komerční banka, Patria and in partners of an investment company. He can also use Porto or UniCredit Bank.

“Our children’s accounts are actually written for the children, the legal representative (parent) establishes a property account for children and has disposal rights over this account,” explains Radim Krejčí, the founder of Porto.

On the other hand, you will not open investment accounts for children in which the money invested actually belongs to Air Bank, Fio banka or Raiffeisenbank.

“Of course, an adult can buy funds or shares in our country and transfer them to the child when he reaches the age of majority,” adds Petra Kopecká, spokesperson for Raiffeisenbank.

So, do children’s stories have any meaning?

It always depends on the specific situation. They are a good choice for a situation where, for example, you are concerned that as a parent you do not have enough discipline not to touch your child’s savings before he is an adult. Withdrawing money is more complicated: either investment companies limit the amount that can be easily withdrawn, or they will send you straight to a guardianship court, where you will have to prove that you will use the money for the benefit of the child.

A child’s account may also be suitable for situations where someone other than the parent – usually a grandparent – wishes to invest for the benefit of the offspring. “In such a case, a children’s contract is desirable because there is a certainty that the funds will actually be used only by the child or someone on his behalf, and not by his parents according to his own will and needs”, explains Lucie Simpartlová, CEO of the investment company.

According to Krejčí, children’s accounts are also suitable if the parent wants to teach the child the principles of investing. “Since the child can have their own access to their account, they can browse the structure and parameters of the investment and learn more about its composition and the transactions that take place on the account. ‘child can get acquainted with investing, learn to better understand money and thus increase their financial knowledge,’ thinks Krejčí.

In Porto, child accounts also have a definite advantage in the form of significantly lower management fees. Elsewhere, fees are at the same level as for adult investors.

Simpartlová does not prefer child accounts in common situations where parents want to hand over the saved money to their adult children. “Given the more complicated liquidity of funds and frequent requests from parents for the ability to release funds to a child, only when they are guaranteed that their child succeeded, we recommend that you make the investment directly in the parent’s name instead. The moment they decide that everything is in order and want to pass the investment on to the descendant, a simple and free transfer of the titles to the contract will be made directly to the child,” he explains.

“We are seeing increased interest from parents in investing for children, but they prefer a variant where they have a written contract on them and thus have the investment fully under control,” says Michal Král, director of the investment company Conseq. .

Is it possible to withdraw money from a child account?

The conditions under which money can be withdrawn from children’s investment accounts before the child turns 18 vary from company to company.

“A parent can withdraw up to 20,000 crowns per calendar year from our children’s account without any restrictions. In the case of a higher choice, either the written and verified consent of a second legal guardian under the age of 15, either the written and verified consent of a child between the ages of 15 and 18 is required. It is not possible to select more than the mentioned 20,000 without the written consent with a verified signature”, says Krejčí for Porto.

“A maximum of 77,200 crowns can be collected from us every six months. If the amount should be higher, the guardianship court must intervene. And if the situation requires it, the parent is obliged to prove to the court the amount and how to manage the funds saved,” says King of Consequ.

At Partners, investment companies always require the consent of the guardianship court when selecting. “Unpleasant issues and property disputes are often resolved within families, so it is certainly safer for buyouts to be decided by a court. Imagine a situation where one of the parents chooses a portion of the child’s funds and the other doesn’t know it,” Simpartlová points out.

“It is necessary to prove to the guardianship court that raising the funds from the investment is actually in the best interests of the child and with the aim of meeting the needs of the child. The duration of the proceedings before the Guardianship court varies depending on the workload of a particular court and the documents the applicant has prepared.According to the information we have, such a procedure lasts from one to six months,” he adds.

Parents who set up investments for children in Česká spořitelna usually also have to apply to the guardianship court.

Can I actively trade on my account? Can I sell and buy?

Well, you opt for a children’s investment account. Then, while the child is under the legal age, can you sell some of the previously purchased investments and then buy other investments for the money you earn? We are talking about a case where you initially invested in US stocks, but now you will have more confidence in European stocks, for example. Or you might want to switch from stocks to bonds. Simply: you want to change your investment strategy.

As with withdrawing money from a child’s account, individual businesses have different requirements for these situations. “Repurchase or any manipulation of the investment is subject to the approval of the guardianship court. Some companies in the market allow manipulation of children’s assets to a certain extent,” says Simpartlová of the investment company Partners. Conseq has a similar situation, where, for example, there is the consent of the guardianship court to change the investment strategy.

More maneuvering space is needed in Porto. “Parents may have certain restrictions on their children’s account. They may set up other portfolios for the child, with a different risk profile, different investment objective and different time horizon. They may set up a portfolio in euros for children and therefore invest in euros. They can change their portfolio twice a year in terms of adjusting their risk profile, “says Krejčí.

Is income tax on children’s investments?

Yes, the Income Tax Act does not differentiate between children and adults when taxing income. “Taxes are income without affecting who received it. As far as the minor is concerned, the legal representative generally acts on his behalf, i.e. if in this case the tax entity was a “child”, then the parent will most often file a tax return for him,” says Klára Křehlová from the press office of the Directorate-General for Finance.

Investment income is only taxed if you do not meet any of the conditions for its exemption. You would therefore only file a tax return for a child if the total income (volume of investments sold) exceeded CZK 100,000 per year, or if you sold the securities more than three years after the purchase (detailed rules for investment taxation).

The child is an adult. And after?

On the 18th birthday, the money saved (investment value) will pass to a newly adult child and he will be able to dispose of it freely. He can therefore go to a bank or an investment company and collect them all or transfer them to a bank account. However, the parents can agree with him on the establishment of disposal rights on the investment account. Therefore, if the bank or investment company allows it. Then they can proceed with the invested funds as they wish.

“Before the child’s eighteenth birthday approaches, the parent is contacted to have the customer (child) update their personal details, including whether they wish to retain the authorized person for their registration account or if the 18-year-old client will manage the account himself. As a rule, on the day of age, the entitled person is always removed”, explains Josef Němeček from Patria.

Jiří Hovorka

He has been writing about personal finance since 2009. He started in Měšec, then dealt with the same topics in Aktuálně.cz, after merging with the Economia publishing house, his texts also appeared in Hospodářské noviny. He has long devoted himself to retreats, … More articles from the author.

Olga Skalkova

He has been writing about banks and financial institutions since the 1990s. She was part of the economic team of Hospodářské noviny, she also wrote on the iHNed.cz and Aktuálně.cz sites. Now he writes externally for Pívání.cz and special HN supplements. She enjoys spending time with her family… More articles from the author.

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