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.
When you gift stock to someone, they become a true shareholder of the company, entitled to all the benefits that come with it, such as receiving annual reports and declared dividends, as mentioned on the company’s website.
Alternatively, you may choose to open a custodial account with one of the top brokers for beginners.
Benefits of Giving Stock as a Holiday Gift
There are several advantages to giving stocks as a gift, both for you and the recipient.
It’s a smart 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.
“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,” says Eva Victor, senior director high net worth wealth planning attorney at Northwestern Mutual.
Furthermore, donating stocks to charity can provide tax benefits. By donating stock to a charity, both you and the nonprofit can avoid 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. It’s a win-win situation for both you and the causes you support.
Donating Stock to Charity
In the spirit of giving, consider donating stock to a charity and securing a tax deduction for the stock’s fair market value. By donating appreciated property, you can avoid taxes on the gains, receive a tax deduction, and support a charitable cause.
“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,” says Victor.
Ensure that the charity you choose qualifies for tax-deductible contributions and make your donations before the end of the year to benefit from a write-off. If you are unsure about where to allocate your funds but want to take advantage of a tax deduction, consider donor-advised funds, allowing you to make a large deduction this year and distribute the funds over several years.
Tips for Giving Stock to Family Members
To make the most of your gift and avoid potential issues, pay attention to the details, especially with larger gifts.
If you are unsure which stock to gift, choose a company that interests the recipient and has long-term growth potential. For children, selecting a stock they are familiar with (like Disney, Nike, Starbucks, Coca-Cola, etc.) may be more important than focusing on valuation metrics.
Here are some additional tips for gifting stock to loved ones.
Going over the gift exclusion
If you exceed 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 less tax-efficient overall due to how gifts are taxed compared to inherited stock.
“Recipients will carry over the donor’s cost basis for gifts made during the donor’s lifetime, and will then realize and pay capital gains tax upon sale of the stock,” explains Victor. “Whereas appreciated stock included in the donor’s gross estate and passed down at death will typically receive a step-up in basis, so that capital gain will not be realized on a sale.”
In summary, inheriting appreciated stock is more tax-efficient than receiving it as a gift.
Consider a Trust
If you are considering giving a high-value gift, a trust may be a suitable option. A trust can help delay the recipient’s access and control over the gift beyond the age of majority, ensuring more judicious use in the future.
When opting for a trust, seek advice from an experienced estate planning lawyer, as trusts involve complex legal considerations.
Bottom Line
Gifting stock can be an effective way to educate younger family members about investing and business. However, it’s essential to consider the tax and estate implications when making significant gifts and consult with an advisor if you have any questions.