John and Sarah - Late 30's
Child: Willow - 4 years

John earns $200K. He's in the top marginal tax rate of 47% including 2% medicare levy. Sarah earns $50K and is on a marginal tax rate of 34.5% including 2% medicare levy. They have once child, Willow, age 4. John and Sarah have received a windfall and would like to invest it towards Willow's future.

John and Sarah have several options including:

1. Leave the money in a bank account or term deposit. Any earnings are subject to tax at the parent's marginal rate.
2. Invest the money in a managed fund. Any earnings are subject to tax at the parent's marginal rate. A capital gain or loss will arise if the investment in the managed fund is disposed to transfer the proceeds to Willow, or if the units in the managed fund are transferred to Willow at a later date.
3. They can set up a trust with themselves as trustees and Willow as the beneficiary. However, any earnings will be treated as unearned income for a child and likely be subject to up to 66% tax.
4. They can deposit the money into their mortgage offset account where it will effectively earn an after-tax return equal to their home loan rate. However, unless they are highly disciplined in cordoning off this money (plus any notionally earned interest) there is a real risk that over time this money may be absorbed into paying for other commitments (e.g. home renovations or purchase of a new home).
5. They can invest in an education fund, but this will mean that Willow could not use the money for non-education related expenses like a gap year overseas or to put towards her first home.
6. They can invest in an investment bond, which is tax paid at 30% (subject to the 10 year and 125% rule), does not require any tax reporting while the money stays invested and no capital gains tax are payable on switches or transfer of ownership. 

We cashflow modelled these scenarios for John & Sarah so they could make a clear decision on what financial path was best suited to their overall goals and lifestyle.