What are minor trust accounts and how do they work?

It’s often said that time in the market matters more than timing the market, and this can be particularly relevant when investing for a child’s future. Even modest investment amounts can build up over time when parents or grandparents start investing on a child’s behalf. Investing $50 a week for your child from an early age can lead to very different outcomes compared with starting when they turn 16. Of course, returns aren’t guaranteed and markets move up and down, but longer timeframes can help smooth the impact of short-term market movements.

That’s why many parents and grandparents look at investing for their children’s future in Australia well before they actually need the money. Some want to help fund education or a first car. Others are thinking further ahead, like giving their child a head start on a home deposit or teaching some financial literacy with real-world experience. One popular option is a Minor Trust Account. It’s an account where an adult (the trustee) manages investments on behalf of a child until they turn 18. In this article, we explore what a minor trust account is, how minor trust accounts work in Australia, and some key considerations before getting started when investing for a child’s future.

Why invest for your children or grandchildren?

Compounding is simplest when you think of it as momentum. Early contributions have more time to grow, so even if the amounts are smaller, the timeframe can do a lot of heavy lifting. When investing for your children, the goal is to build a base that can support meaningful life milestones later.

A long-term investment can be more than money; it can be a teaching tool as well. As kids get older, you can involve them in age-appropriate ways, like:

• Explaining what shares and ETFs are.

• Showing how dividends work.

• Discussing why markets fluctuate.

It’s one reason why some families prefer investing in real assets rather than leaving everything in a savings account.

But savings accounts can be useful (especially for short horizons), although returns may not always keep pace with inflation over long periods.  For families exploring investing for their children’s future in Australia, shares and ETFs are one option to consider. It is, however, important to remember that the value of investments can fall as well as rise.

Common ways to invest for kids in Australia

There’s no one-size-fits-all approach. The right option can depend on factors such as your risk tolerance and how hands-on you want to be. But here are some options to consider.

1. Savings accounts and term deposits

One of the more common ways of investing for children. Used for short-term goals or when capital stability is the priority. Pros are simplicity and low volatility, while cons are lower long-term growth potential.

2. Education funds and insurance bonds

These can be structured for longer-term investing and can simplify paperwork. Fees and rules apply, so it’s worth reading the product documentation and getting external advice if you’re unsure.

3. Informal vs formal trusts

 A minor trust account is typically an informal trust arrangement where an adult manages investments on a child’s behalf. By comparison, a formal trust is established through legal documentation and usually involves greater complexity and cost.

4. Micro-investing apps vs real share ownership

Micro-investing apps can make it easier to start with small amounts. However, some families prefer real shares and ETF ownership for:

• Exposure to specific assets.

• Broader market options.

• A stronger educational link to how investing works.

A minor trust account can be a useful option here, especially when you want to invest in listed shares (both ASX shares and international shares) and ETFs over the long term.

What is a minor trust account?

A minor trust account is an account where an adult acts as trustee and invests for a child, who is the beneficiary. In basic terms, you control the account and make the investment decisions, but the investments are held for the child and can be transferred to them when they reach adulthood.

Who can open one? Parents, grandparents and guardians. That makes it relevant for investing for grandchildren in Australia as well, particularly where family members want to contribute to a portfolio rather than giving cash gifts that will be spent straight away.

If you’re thinking about CMC’s offering, you can read about the structure and features of our Minor Trust Account here.

How do minor trust accounts work?

Opening and funding the account

You apply as the trustee (adult), then fund the account from your bank account. Some families choose regular contributions, while others invest lump sums (birthday money, bonuses, gifts from grandparents).

Trading and managing investments

With an online platform such as CMC Invest, you can invest in a wide range of assets, including ASX shares, international shares and ETFs. This supports diversification across countries and sectors from one account, including:

• ASX exposure.

• Global exposure.

• Diversified funds.

Ownership and transfer at age 18

The trustee manages the account while the child is under 18. When they reach 18, ownership is transferred. The sticking point is that the structure is in place to help you build assets for the child while maintaining control until they’re legally an adult.

Features

CHESS is the ASX’s electronic system for recording shareholdings. A CHESS-sponsored setup means holdings are recorded under a Holder Identification Number (HIN), rather than pooled under a custodian. With CMC, our ASX holdings are CHESS-sponsored and recorded under the investor’s HIN.

For international shares, holdings are held in custody arrangements instead of under a HIN. With CMC Invest, investors can access a wide investment universe, including more than 45,000 shares and ETFs across multiple international markets, with $0 brokerage available on select international markets.

Tax implications

This is important as minor trust account tax outcomes depend on the structure and your personal circumstances. The ATO has specific rules for income earned by minors, including special tax rates on certain types of income, as well as different treatment for ‘excepted income’ and ‘excepted persons’.

General points to be aware of include:

• A child under 18 could be taxed at higher rates on some types of investment income under ATO rules.

• If income is ‘excepted’ (e.g. employment income), different rates apply.

• Trust arrangements can involve different reporting obligations depending on who is entitled to income and how the trust is structured.

• Good record-keeping matters (contributions, dividends/distributions, corporate actions).

Benefits of a minor trust account

This type of account can be attractive because it allows the adult to have control over long-term investing choices for a child. Just a few of the benefits include:

• Control: You decide what to invest in and when.

• Real asset exposure: Invest in shares and ETFs rather than leaving money in cash.

• Diversification: Spread exposure across sectors and countries using ETFs and international markets.

• Educational value: Involve the kids gradually as they grow up, building their financial literacy over time.

• Seamless handover: Transfer ownership at 18 so young adults get to start their lives with assets already in place.

While minor trust accounts can offer flexibility, they also involve important considerations. Investments held within a minor trust account are subject to market risk, meaning the value of investments can fall as well as rise. Returns are not guaranteed, and outcomes will depend on factors such as asset selection, market conditions and timeframes. As with any investment structure, a minor trust account may not suit all families, and it may be appropriate to seek professional tax or legal advice before getting started.

How to open a minor trust account in Australia with CMC Invest

Opening a minor trust account with CMC Invest is straightforward. Here's the step-by-step process:

1. Visit the Minor Trust Account page to start your application and review the markets available.

2. Gather the required documentation. You’ll need:

• A valid ID for the trustee (the adult managing the account)

• Details for the minor beneficiary (the child)

• Proof of your Australian bank account for funding

3. Complete the online application

To do so, apply as the trustee and submit the required verification documents through CMC Invest’s secure online process.

4. Fund and start investing

Once verified, transfer funds from your Australian bank account and start building a portfolio using:

• ASX shares

• ETFs

• International shares

5. Manage and monitor

Use the CMC Invest platform to track performance, rebalance your portfolio and maintain records for tax reporting purposes.

What about trust structures?

 An informal minor trust account can offer a simpler structure than a formal trust, depending on a family’s unique circumstances and objectives.

Alternatives to consider

Depending on your goals, the alternatives to a minor trust account are:

• Savings accounts or term deposits: Simpler, lower volatility, potentially lower long-term growth.

• Insurance bonds: Structured, but fees and rules depend on the institution.

• Micro-investing apps: Easy entry, but product structure and ownership mechanics can differ.

• Formal trusts: More control and planning potential, but higher legal and admin requirements.

 For some families, a minor trust account is one way to invest in assets while maintaining control until a child turns 18. It can also help with investing for grandchildren in Australia, particularly when you want gifts to become long-term building blocks rather than short-term spending money.

 When considering different options, it can be helpful to think about your timeframe, choose an investment approach you understand, and keep diversification and risk in mind. You may also wish to seek professional tax or legal advice, particularly when it comes to minor trust account tax rules.

Ready to get started? Learn more and open a Minor Trust Account today.

 Disclaimer: This article provides general information only. It has been prepared without taking account of your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments, or as a recommendation and/or investment advice. It does not intend to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any financial instruments. You should consider your objectives, financial situation and needs before acting on the information in this article. CMC Markets believes that the information in this article is correct, and any opinions and conclusions are reasonably held or made on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this article. CMC Markets is under no obligation to, and does not, update or keep current the information contained in this article.