A Guide to Give Stock as Gift

Stocks are a popular investment choice, with 46 percent of Americans owning stock-related investments in 2023, up from 43 percent in 2022.

In addition to being a solid investment, stocks can also make excellent gifts. They have the potential to appreciate in value, offering benefits well beyond the initial gift. In many ways, it’s a gift that continues to grow.

However, giving stocks is not as straightforward as making a purchase on Amazon. There are specific rules and regulations to follow to ensure the process is legal and smooth.

How to gift stock

If you’re considering giving stock as a gift, you have several options:

• Purchase Stock for a Child: Set up a custodial account managed by you or another family member to buy stock specifically for a child.
• Transfer Stock from an Existing Account: Contact your broker to facilitate an electronic transfer or send stock certificates.
• Use an App: Utilize an online app designed for gifting stock.

Regardless of the method, the recipient must have a brokerage account to receive the stock. Minors should have a custodial account, while adults can use a regular brokerage account. Although physical stock certificates are an option, they are generally impractical and costly.

To avoid potential tax issues, stay within the annual gift exclusion limits. For 2024, you can gift up to $18,000 per recipient without triggering a gift tax. A married couple can give up to $36,000 per year without incurring taxes. Make sure to complete the gift by year-end to benefit from this year’s exclusion limits; otherwise, the gift will count toward next year’s exclusion.

Where can you give stock to children?

If dealing with a broker seems cumbersome, consider these online alternatives:

• Stockpile: This platform allows you to purchase gift cards redeemable for stocks or ETFs, with amounts ranging from $1 to $200. You can buy fractional shares, making it accessible even if you don’t have the full share price. The app charges a monthly fee of $4.95 for ongoing access.
• GiveAShare.com: This service offers single stock certificates as gifts. For $39 plus the price of the stock, you receive a framed certificate. This can be a tangible and engaging way for children to see their gifted stock. Recipients become actual shareholders, receiving benefits such as annual reports and dividends.

Alternatively, you might choose a custodial account with a beginner-friendly brokerage.

Benefits of gifting stock

Gifting stocks offers several advantages for both the giver and the recipient.

For Recipients:

• Encourages Financial Literacy: Stocks can spark an interest in investing, helping kids learn about saving and financial growth from an early age. Unlike conventional gifts, stocks offer potential for long-term appreciation, making them a meaningful choice when immediate cash isn’t necessary.
• Educational Value: “Gifting stocks can be an excellent way to teach children or grandchildren about saving, investing, or developing an interest in the stock market, a specific company, or an industry,” notes Eva Victor, senior director of high net worth wealth planning at Northwestern Mutual.

For Givers:

• Tax Benefits for Charitable Donations: Donating stock to charity can provide significant tax advantages. By donating appreciated stock, you can avoid capital gains taxes and claim a deduction for the stock’s fair market value. This benefits both you and the charity, allowing the organization to receive the full value of the donation.

Donating stock to charity

If you’re inclined to give stock to a charitable organization, you can benefit from a tax deduction based on the stock’s fair market value. Donating appreciated stock avoids capital gains taxes, lets you claim a deduction, and supports a cause you care about.

“Donations of stock held for more than one year are subject to adjusted gross income limits of 30 percent, with a five-year carryforward for any unused portion,” says Victor.

Ensure that your chosen charity qualifies for tax-deductible contributions and make your donation before the year’s end to secure the tax write-off for this year. If you’re unsure about the specific allocation but want to maximize your deduction, consider donor-advised funds. These allow you to make a large deduction this year and distribute the funds over several years.

Tips for gifting stock to family members

To make the most of your stock gift and navigate potential complications, keep the following considerations in mind, especially if the gift is substantial:

1. Choose the Right Stock:

• Interest and Growth Potential: Select a company that interests the recipient and has strong long-term growth potential. For children, consider stocks from companies they’re familiar with or excited about (such as Disney, Nike, or Starbucks) rather than focusing solely on financial metrics.

2. Be Aware of Gift Exclusions:

• Annual and Lifetime Limits: For 2024, you can gift up to $18,000 per recipient without triggering gift tax. A married couple can gift up to $36,000 annually without incurring tax. If you exceed this limit, you can use your lifetime gift exclusion, which is $13.61 million in 2024, to cover the excess. However, using this lifetime exclusion may be less tax-efficient than other strategies, as gifts are taxed differently from inherited assets.
• Tax Implications: “Recipients will inherit the donor’s cost basis for gifts made during the donor’s lifetime and will pay capital gains tax upon sale,” explains Eva Victor, senior director of high net worth wealth planning at Northwestern Mutual. “In contrast, appreciated stock included in the donor’s estate at death typically receives a step-up in basis, minimizing capital gains tax upon sale.”

3. Consider Using a Trust:

• Trust Benefits: For high-value gifts, a trust can be a valuable tool. It allows you to control when and how the recipient gains access to the gift, potentially ensuring it is used more wisely in the future.
• Consult an Expert: Trusts can be complex, so it’s wise to consult an estate planning attorney to navigate this option effectively.

By considering these factors, you can make a thoughtful and tax-efficient stock gift to your family members.

In Conclusion

Gifting stock can be an excellent way to educate younger family members about investing. However, be mindful of the tax and estate implications of large gifts, and consult an advisor if needed.