Investing for minors

Investment for children is not just about risk and return, it’s also about the future and the desire to build up solid start-up capital.

Investment for children is not just about risk and return, it’s also about the future and the desire to build up solid start-up capital. If you have a long investment horizon, history has shown that mutual funds and shares normally produce a better return than traditional bank savings. You can invest a small amount every month or invest a larger amount and give as a gift on different occasions. Another possibility is to invest in your own name and transfer funds or shares to the child at a later date. Before you make the investment for minors, there are several things you should consider, and here we give you an overview of some important factors.

_{Written by Private Banking legal advisers Åse Kristin Nebb Ek and Helene Langlo Volle}

If you have a long investment horizon, history has shown that mutual funds and shares normally produce a better return than traditional bank savings. You can invest a small amount every month or invest a larger amount and give as a gift on different occasions. Another possibility is to invest in your own name and transfer funds or shares to the child at a later date. Before you make the investment for minors, there are several things you should consider, and here we give you an overview of some important factors.

Benefits and disadvantages of different alternatives

In whose name will the investment be made?

If you invest in the child’s name, this will be considered a gift that has been transferred now and cannot be reversed. There is no inheritance tax or other fees for gifts and inheritances today. Should an inheritance tax be introduced later, inheritance tax cannot be charged on the assets that have already been transferred. After the transfer, the child will receive assets, but until they reach the age of 17, the child is not separate from the parents. In the year the child turns 17, the child must submit their own tax return and will then receive a separate exemption amount of NOK 1 700 000 in 2023 before they are charged wealth tax.

Students who have net assets of NOK 467 697 or more in 2023 will receive a reduced grant from the Norwegian State Educational Loan Fund. You can read more about the rules for reductions on this page Income and assets at lanekassen.no(Norwegian)

If the funds are invested in your own name, the assets will be included in your own wealth tax calculation, and you pay the wealth tax and the child can receive a full grant from the Norwegian State Educational Loan Fund. Should you later divorce separate, the assets will be included in the divorce or deceased’s estate. It is then not certain that the child will receive the funds as planned, unless you can regulate this in the spouse’s package and will.

What is suitable in each individual case must be assessed specifically based on personal and financial conditions.

Why should you create a deed of gift?

When a child is a minor, the Guardianship Act regulates how funds will be invested and who can manage these. If the child has received total values of more than 2 G (approximately NOK 222 954 as of 1 May 2022), the guardian authorities (the County Governor) must manage the funds. Funds that are managed by the County Governor must be placed in a bank account and there is no opportunity to save in a mutual fund or similar.

We see that many people do not know that givers have the opportunity to override the Guardianship Act’s rules. In a deed of gift, the giver can stipulate that the investments should not be managed by the County Governor, but must be managed by a person who provides his/her own appointee and it can be specified that the provisions of the Norwegian Guardianship Act on supervision and accounting obligations do not apply. However, please note that the opening of a mutual fund account, a VPS account and a share savings account can be challenging when a child is a minor. If the giver gives an amount, we recommend that the deed of gift specify that investments can be made with a higher risk than a bank account.

Even if the child becomes legally responsible at 18, we also find that more and more people consider it too early for an 18-year-old to get full access to the assets. It is possible to specify that the child cannot get full access until later. When transferring large values, however, it should be ensured that the child is given money to pay wealth tax and pay for any studies. It is also possible to specify that the gift should be the child’s separate property.

Even if the gift amounts to less than 2 G, we still recommend that a gift letter is created that limits the involvement of the County Governor already from the first investment. This will be important to be able to make later changes to the portfolio. Without such a deed of gift, cash from a sale cannot be reinvested in mutual funds or shares, but must remain in the child’s bank account.

If you find it easier to invest in your own name and transfer the gift at a later date instead, we recommend you draw up a will in which assets are transferred as planned should you pass away before the gift is given. In the will, you should consider taking the same regulations/limitations that are mentioned above. We would like to point out that it is not permitted to limit your children’s rights relative to the statutory inheritance that is currently 15 G (approx. NOK 1.6 million) per child.

Invest in your own name

Advantages

Disadvantages

Invest in the child’s name

Advantages

Disadvantages

Share savings account and securities account

Securities account (Euronext Securities Oslo (VPS)) and mutual fund account

If you wish to invest in fixed-income funds, balanced funds with lower risk (proportion of shares below 80 per cent) or unlisted shares, this cannot be done via an ASK. If you want to invest in your own name, you can create your own mutual fund account or VPS account for this. The transfer of fixed-income funds and balanced funds to the child at a later date will not trigger a tax liability, but the child will inherit your acquisition values on the different shares and equities.

We remind you of the importance of creating a deed of gift as mentioned above.

If you would like to invest in your child’s name, please contact your customer adviser at Private Banking.

Disclaimer

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