Everything you need to know about transferring shares to your grandchildren

Transferring shares to your grandchildren is a thoughtful and strategic way to pass on your wealth and provide future financial opportunities.

By doing so, you are not only passing on assets but also providing your grandchildren with the potential to benefit from the growth and value appreciation of those shares over time.

However, it’s crucial to have a comprehensive understanding of the costs and processes involved to make informed decisions and ensure the process goes off without a hitch.

In order to ensure a smooth transition, Starts at 60 has delved into the intricacies of transferring shares to your grandchildren, exploring the potential expenses, legal considerations, and step-by-step processes necessary to successfully execute this wealth transfer in a manner that aligns with your financial goals and ensures a smooth transition.

By gaining clarity on these aspects, you can navigate this endeavour with confidence and provide lasting benefits to your beloved grandchildren.

Understanding the costs

Transferring shares to grandchildren involves several important considerations, starting with the potential costs associated with the transfer process. It’s essential to be aware of any fees or charges that may arise when transferring shares.

These costs can vary depending on the transfer method chosen, such as an off-market transfer or the establishment of a trust. By understanding the financial implications upfront, you can plan accordingly and assess the overall feasibility of the transfer.

Financial adviser and stockbroker, Andy Dorrach points out that “in order to transfer shares between parties (e.g. between a grandparent and their child) you need to complete an “Off-market transfer”, most brokerages and providers will charge a fixed fee for this.”

“This one-off fee (charged per holding, e.g. per company or investment) typically shouldn’t be above $100 and for the most part around $50 per company,” Dorrach explains.

Dorach also suggests that when it comes to the finances involved in this process, “deep consideration” should be given to whether transferring shares “will cause more tax headaches than saving any. It could wind up meaning that a grandchild who is a minor will need to apply for a TFN, open a bank account and file a tax return every year.”

“The Australian tax code is written with explicit consideration to ensuring that children with zero employment income aren’t utilised to reduce tax outcomes from investments and a by-product of this is that it can be a costly and time-consuming exercise to invest in the names of grandchildren under the age of 18. It might be better to simply retain the options as they are,” Dorach adds.

Taking the first steps to initiate the transfer process

When it comes to transferring shares to your grandchild, getting the process started is the crucial first step. Understanding the necessary actions and considerations is essential for a smooth and successful share transfer.

From selecting a broker to navigating the off-market transfer procedure, let us explore the key aspects that will set you on the right path toward transferring shares with confidence and clarity.

Dorrach explains that “gifting shares can be tricky, you need to ensure that the correct procedures are followed and perhaps most importantly, it’s essential that people are aware of the potentially significant tax outcomes not just for the grandparent in the form of capital gains, but the ongoing headache of investing for minors, as well as the punitive tax rates they incur.”

To ensure a seamless transfer of shares, it is important to follow the steps outlined below:

Step 1: Select a broker

To begin buying shares, you’ll need to choose a broker if you haven’t already. The easiest and most cost-effective option is to sign up with an online share trading platform.

Consider how you plan to transfer the shares to your grandchild. If possible open an account with the same broker for them to ensure smooth share transfers.

Step 2: Perform an off-market transfer

Transferring shares to another person requires an off-market transfer, which is a private transaction outside the share market.

Determine if the shares are CHESS-sponsored or issuer-sponsored. If you bought the shares or ETF through a stockbroker or online platform, they are likely CHESS-sponsored (though not always). In this case, request an off-market transfer form from the same broker.

If you inherited the stocks or received them from someone else, they are likely issuer-sponsored. Contact the company’s share registry to initiate the off-market transfer. Find the share registry information on the ASX website by searching for the company and checking the details tab.

Step 3: Submit the off-market transfer form and print the confirmation

You need both parties to sign the off-market transfer forms submitted to your broker or the share registry.

Complete the form together, providing your names, addresses, contact details, signatures, and the details of the shares being transferred.

Submit the form to your broker or the share registry, await the confirmation in the mail, and then print it out.

Making the transfer process as smooth as possible

When it comes to transferring shares, a smooth and hassle-free process is essential to ensure a successful outcome.

From understanding legal requirements and tax implications to navigating paperwork and communication, following the right steps is crucial.

In order to make the whole process as simple as possible, Dorrach explains that “aside from checking capital gains, the most important tax consideration is the age of the grandchild.”

“Minors are taxed heavily for “unlearnt income” e.g. dividends from a stock or capital gains and as such, there should be a tax benefit,” he explains.

“Secondly, it’s essential for the grandparent to consider implications for Centrelink and age pension entitlements, for example, it will potentially constitute a gift and therefore may have asset test and income test implications for the grandparent. I cannot stress how important both Centrelink and the tax status of the receiving grandchild is.

“Lastly, you will want to consult your broker who holds the shares or the registry where you hold the shares as there is always paperwork involved and for the most part, registries and brokers require original paper copies.”

Understanding the costs and process involved in transferring shares to grandchildren is vital for successful wealth transfer planning. By familiarising yourself with the potential expenses, legal considerations, and step-by-step procedures, you can navigate this process confidently and provide lasting financial benefits to your grandchildren.

Remember to seek advice from professionals who specialise in estate planning, taxation, and financial advisory services to ensure compliance with regulations and to tailor the transfer to your unique circumstances. With careful planning and thoughtful execution, you can pave the way for a prosperous financial future for your loved ones.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.