Stocks are a popular investment: 46 percent of Americans owned a stock-related investment in 2023, compared to 43 percent in 2023, according to a recent Bankrate survey.
But stocks can also make great gifts, appreciating in value well beyond the initial gift amount. In many ways, it’s the gift that keeps on giving.
Giving stock is not quite as easy as placing an order from Amazon, and would-be givers need to pay attention to a few rules so that they stay on the right side of the law.
Key takeaways
- Unlike conventional gifts, stocks have the potential for long-term growth. It can be a great way to build wealth.
- You can gift stocks to children through custodial accounts. For adults, you can transfer shares from an existing investment account to the recipient’s brokerage account.
- You can gift up to $18,000 in 2024 without triggering a potential gift tax. If the stock appreciates in value, the recipient will owe capital gains tax when they sell the stock.
How to gift stock
If you’re thinking of giving stock, there a few options for how to do so:
- Purchase stock specifically for a child: You can do that via a custodial account over which you have or another family member has control.
- Give stock from an existing investment account: Contact your broker to help make the transfer electronically or by stock certificate.
- Give stock with an app: Find an online app that allows you to give stock.
In any case, the recipient should have a brokerage account to receive the stock. A minor child should have a custodial account, while an adult may have a regular account. While you could transfer the stock as physical certificates, it’s merely a novelty to do so (and expensive).
Either way, you’ll want to stay under legal thresholds that could cause tax headaches.
You can safely gift stock under the annual gift exclusion, which allows individuals to give up to $18,000 (for 2024) to any number of recipients without incurring a gift tax. A married couple filing jointly can give up to double that individual amount annually. To qualify for this year’s exclusion, you need to make the gift before the end of the calendar year. Otherwise, your gift will count toward next year’s exclusion.
Where can you give stock to children?
It can require time and paperwork to go through a broker, so if you’re looking for a simpler way to gift stock, there are some online apps that can help. One option is Stockpile.
Stockpile allows you to give a gift card for a preset amount (ranging from $1 to $200) redeemable for stocks or ETFs. You can buy fractional shares, so you don’t need the money for a full share. If you’re looking to get started investing, you can also use the app. Users should note that the app charges $4.95 per month for ongoing access.
Another option is GiveAShare.com, which allows you to buy single stock certificates as gifts. Traditional brokerages charge high fees for physical stock certificates — if they offer them at all anymore — so this company offers a unique option, especially for kids who can see and hold their gifted investment. The company charges $39 in addition to the price of the stock, and the recipient will receive a framed certificate of the share.
Benefits of giving stock as a holiday gift
When you give the gift of stock, both you and the recipient can enjoy several benefits.
It’s a great way to introduce children to the world of investing and promote financial literacy from a young age. Unlike traditional gifts, stocks offer the potential for long-term growth, making them a thoughtful choice when immediate cash isn’t a priority.
According to Eva Victor, Senior Director of High Net Worth Wealth Planning Attorney at Northwestern Mutual, “Gifting stocks can be a great way to teach children or grandchildren about saving and investing, or a fun way of creating interest in the stock market, a company, or a particular industry.”
Furthermore, donating stocks to charity can provide tax benefits. By donating stock to a charity, both you and the nonprofit can avoid paying capital gains tax on the asset. You can claim a deduction for the stock’s value, legally avoiding tax, while the charity receives the full benefit of the stock. This arrangement is a win-win for both you and the causes you support.
Donating stock to charity
In the spirit of giving, consider donating stock to a charity to secure a tax write-off for the stock’s fair market value. By donating appreciated property, you can avoid paying taxes on the gains, receive a tax deduction, and support a charitable cause.
According to Victor, “Applicable adjusted gross income limits are 30 percent of adjusted gross income for gifts of stock held for more than one year, with a five-year carryforward for any unused deduction.”
Ensure that your chosen charity qualifies for tax-deductible contributions and make your donations before the year ends to claim a write-off. If you’re uncertain about where to allocate your funds but want a tax write-off, consider donor-advised funds, which allow you to take a substantial deduction this year and distribute the funds over several years.
Tips for gifting stock to family members
To maximize the impact of your gift and avoid potential complications, pay attention to the details, especially for larger gifts.
If you’re uncertain about which stock to give, select a company that aligns with the recipient’s interests and offers long-term growth potential. For children, choosing a stock they resonate with, such as Disney, Nike, Starbucks, or Coca-Cola, may be more important than focusing solely on valuation metrics.
Here are some additional tips for gifting stock to loved ones:
Exceeding the gift exclusion
If you surpass the gift exclusion in a given year, you can utilize your lifetime gift exclusion, currently valued at $13.61 million in 2024, to cover the excess amount. However, using this exemption is generally less tax-efficient due to how gifts are taxed compared to inherited stock.
Victor explains, “Recipients will retain the donor’s cost basis for gifts made during the donor’s lifetime, and they will pay capital gains tax upon selling the stock. In contrast, appreciated stock included in the donor’s gross estate and passed down at death typically receives a step-up in basis, avoiding capital gains upon sale.”
In essence, inheriting appreciated stock is more tax-efficient than receiving it as a gift.
Consider establishing a trust
If you intend to gift a substantial amount, consider using a trust. A trust structure can delay the recipient’s access and control until after they reach the age of majority, promoting more judicious use of the gift in the future.
To explore this option, seek guidance from an estate planning attorney, as trusts involve intricate legal matters.
Conclusion
Gifting stock is an excellent way to educate younger family members about investing and business. However, it’s crucial to consider the tax and estate implications, especially for significant gifts. If you have any questions, consult with a financial advisor for personalized guidance.