High taxes will hit daughter’s windfall
Michelle is concerned that ...
QMydaughter is soon to inherit a sizeable sum (about $180,000), and as the executor of the will, I need to hold the money in trust until she turns 18. If I place the money in a term deposit account, will she liable to pay high taxes? I am keen to ensure that I understand any tax implications for.
What a wonderful start in life for your daughter. As executor you will have to act as per instructions in the will, but I am hopeful you can hold investments for her as her trustee. The problem for under-18-year-olds is that they pay tax on unearned income at really high rates. The first $416 would be tax free but the amount between $417 and $1307 is taxed at 66% and then at 47% on income above $1307. Not nice!
If you invest as her trustee, you would pay tax as if it was your income. It is worth talking to your solicitor about the conditions in the will
A term deposit is a very safe but low-return choice. Other options such as shares or a mix of shares and term deposits are all quite reasonable, but dependent on her age now. I do recommend that shares be held for a minimum of five years.