The biggest deterrent of putting assets in your children's name is the possibility of losing the assets later in life. When your children grow up and get married, and if there is no prenuptial agreement, they risk losing half of the assets. If held jointly, it can pose all sort of headaches too in a divorce if 1 party (of your 2 children) may not wish to liquidate the assets. Remember, quite often parents have no control in choosing who their next of kin can marry. This is why in NZ, Family Trusts are so popular, though there is the cost of administrating (you could view it that cost is the insurance premium in protecting the assets).
You mentioned about putting the proceeds in an index ETF? If invested in an overseas ETF like the S&P500, then there's FIF. The problem with FIF is it taxes paper gains which is the biggest threat to the long term compound return of the investments. In
my opinion, and the way our current gov't is addressing the housing problem, it is not very likely the returns on a sharemarket ETF
NET of taxation, would beat the returns of owning a house in NZ. This is kinda like the unsaid rule when you sit in a financial advisor's office. They will not tell you or work you through the ins and outs of IRD's taxation applied to various managed funds in NZ and the workings of FIF. While on the other hand, owning a house, you basically get the tax free capital gain. Now of course it can be debated that future house price gains will be small but over a multi-decade return, again if you look at historical gains on house prices in NZ, it is not likely that trend will change much but the rules in place encourage investment in houses. NZ is a nation of having people invest in houses as 2/3rd of it's total wealth is comprised in real estate (in the much similar manner as in China). While places like Canada or the US, it's the other way around having 2/3rds of the wealth comprised in the stock market. Politically, it's not likely our gov't will use taxation against real estate to tip the advantages over to investing in overseas shares.
But going back to why I find FIF is such a horrible disincentive to investors in foreign shares. I would like to show you a piece from John Bogle (RIP - the father of the index ETF):
https://www.marketwatch.com/story/jo...urn-2016-05-19
Here he explains how an 'all in cost' of 2% loses you 66% of the portfolio gain over a 50 year period (assuming a 7% annual return).
"How much worse? How about two-thirds of your gains. It sounds crazy until you recognize what happens when supposedly small fees are allowed to run on for decades — Bogle's tyranny of compounding costs. "Let's assume the stock market gives a 7% return over 50 years. If you get to 7%, each $1 goes up to $30. If you get to 5% (that would be 7% less the industry's typical 2% all-in costs), you get $10," Bogle recently said in an interview.
"So $10 versus $30. You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return! As I say to people, if that strikes you as a good deal, by all means do it!"
and I would like to emphasis the term "all in cost" because what he is speaking of is the losing of long term compound gains. FIF specifically does that where using the FDR method, up to 5% of the paper gain of the foreign investment becomes taxable at the individual's RWT rate. You don't see this happen, the managed funds or holder of your account does this along with their administration mgt fees they take off every year. Therefore if you go under this model, it's very clear the investor is not the winner in these investment schemes but rather, IRD and the fund managers because you've taken all the risk but get a lot less in return.
Now i'm very certain many will disagree with my point of view. Over in N. America, taxation of such retirement plans are done at time of withdrawal - which is typically done at retirement (for which incomes at that
elderly age is low). That means you can
defer the tax to a period when you're at the lowest income tax bracket. However, with Kiwi Saver there is absolutely NO distinction of age related income. More than often, those that can contribute more towards the KS scheme, are usually in the higher RWT bracket, and therefore their KS fund under FIF, the paper gains will be taxed at their high income tax bracket. Anotherwords, those that can contribute more are penalised more by paying more tax into the investment scheme.
Establishing a good worth ethic with your children starts with not worrying about spoiling them because they know you have a lot of money and wealth. It starts with educating them about the assets and how to compound the returns. NZ does very poorly in the area of Finance and not much is taught at grade school. This is different to in Canada where many families start investing from the time their child is born (ie RESP - reg. education savings plan), RDSP, RESP, TFSA, etc that exist there but in NZ, we only have KS. I would say don't worry about your children being spoiled - rather, educate them about your estate, how you feel that wealth took a very long time to achieve, don't risk it all in a bad divorce or tell them how important a prenup is.