Stocks can be given to a recipient, who then benefits from any gains in the stock's price. Giving stocks and other securities can also have benefits for donors as well, particularly if the stock has previously appreciated in value. If you're the donor, you can potentially avoid taxes on the earnings or gains.
Key Takeaways
- Stocks can be given so that the recipient benefits from any gains in value.
- You can give stock by moving it from your brokerage account by electronic transfer to the recipient's account.
- You can also buy a single or fractional share of stock from a broker or, in some cases, from companies that sell shares directly to investors.
- The transfer of stocks from one individual to another has tax implications.
How do you go about giving a stake in the market, and what are the implications? Below, we detail the ins and outs of this financial gesture and the impact it can have financially for both the donor and the recipient.
How To Give Stocks
Giving shares of stock can be a fun way of creating interest in the stock market, a company, or a particular industry. Stocks can be given from an existing investment portfolio through a brokerage firm. They can also be given to children, which can be a valuable way to teach them about money, investing, and saving, or give them a financial bump at important times in their lives, like graduation or marriage.
Shares with a capital gain can be transferred with the gain to the recipient. However, the recipient would pay taxes on the capital gains when they sell those shares. This would include the difference between the original cost basis or the purchase price and the selling price.
Consult a tax professional because capital gains taxes can be different for short-term holdings versus long-term holdings.
Transferring a Stock Certificate
Transferring the physical stock is required if the stock is a certificate. The owner must endorse the stock by signing it in the presence of a guarantor. This can be your bank or broker.
There might also be a form on the back of the certificate for the transfer of ownership. The stock will be rendered non-negotiable and is transferable after the certificate is completed.
Giving Stock Through a Broker
When donating through a broker, there usually isn't the need to deal with a physical stock certificate. The shares are instead stored electronically in a brokerage account. You can give the stock and transfer ownership of all or a part of your stocks for a particular company. Many brokers also offer a service for transferring shares as a gift.
You can make an agreement with your broker to give or transfer shares to a child every year on their birthday.
Brokerage accounts may require written and signed authorization from you, along with explicit instructions about how the transfer should be made. Brokers typically have an online form that includes the following information:
Sender Information
- Account name and address
- Account number
- Stock description, including the number of shares and the company name
Recipient Information
- Account name
- Social Security number
- Account number
The process is more straightforward if the shares are transferred within the same brokerage firm. If not, you should contact the receiving institution for its procedures for transferring stock ownership. The receiving institution will have the address to send the written authorization or electronic transfer instructions.
You should verify the recipient has an account with the receiving broker before completing the transfer.
Giving a Single Share
You can also give a single share of stock. This can be a way of providing a child with an interest in the market. You can buy a single stock from your broker or from firms that specialize in selling single shares.
In some cases, even a single share could have a hefty price tag. If you're interested in giving an expensive stock but a single share is out of your price range, many online brokers allow you to buy fractional shares.
Websites like GiveAShare specialize in selling shares as gifts to others. You can pick the share based on the interests or hobbies of the recipient. For example, you can give a share of Nintendo or Sony to a young person interested in gaming. A share of Disney could be a fun way to introduce younger children to stock ownership.
The firm you use might charge a fee, as well as costs for framing and shipping the share certificate that you purchase.
The Tax Implications of Giving Stock
Gifting stock has tax implications for both the giver and the recipient. It's essential to consult with a tax professional based on your situation, especially as tax laws can be complex and change frequently. Nevertheless, here are some general points about stock gifts and taxes:
- Gift tax: The gift tax can apply to stocks, but the Internal Revenue Code offers some leeway that helps many who give avoid paying the gift tax. The annual gift tax exclusion entitles you to give away up to $17,000 per person per year as of 2023. You can use the lifetime exemption if the value of the stock is more than the annual exclusion. The lifetime exemption is $12.92 million as of 2023. You might still have to file a gift tax return (Form 709) when the gift value exceeds the annual exclusion amount, even if no gift tax is owed because of the lifetime exemption.
- Capital gains tax: Recipients of your stock may be liable for capital gains tax when they later sell it. However, they wouldn't have to pay taxes on the full value of the sale. They can deduct your cost basis in the stock, effectively passed to them. The cost basis is what you initially paid. For example, the recipient would owe capital gains tax on $3,000 if you gave $2,000 in stock and they sold it for $5,000. The tax rate would depend on how long they held the stock before selling it.
- Holding period: For the recipient, the holding period includes the time you held the stock. This helps determine whether any future stock sale qualifies for long-term capital gains tax rates.
- Giving to charities: When you give stock to a charitable organization, you might be able to deduct the full market value of the stock at the time it was delivered on your income taxes and avoid capital gains tax on any appreciation.
- Gifts to spouses: When you give stock to your spouse, it's generally not subject to any gift tax, no matter the value of the stock involved.
- Giving while alive or upon death: There are also different tax implications when giving stock during your life versus doing so upon your death. When stock is inherited, the cost basis steps up to the fair market value at the time of your death, which can reduce what your heir owes for the capital gains tax.
What Are the Steps for Giving Stock to Someone in Your Family?
Giving stocks to family members involves several steps. First, you need to consider the number of shares you want to give. Next, contact your brokerage firm to begin the transfer, which likely requires filling out a gift transfer form and providing the recipient's brokerage account information. Make sure to keep records of the transaction and the stock's value on the date of the gift for tax purposes. In addition, it's prudent to consult a tax professional to understand any tax implications for you and the recipient.
Can Gifting Stock Help With Estate Planning?
Yes, giving stock can be part of your estate planning strategy. When giving stock, you might reduce the size of your taxable estate, reducing the liability for estate taxes. Moreover, giving stocks enables you to pass assets to your heirs during your lifetime so they can benefit from any appreciation in the stock's value. It's advisable and prudent to consult an estate planning attorney or tax professional to ensure that gifting stock aligns with your overall estate planning goals.
Will I Have to Pay Capital Gains Tax If I Give Away Stock That I Own?
No. Capital gains tax only comes due if you sell an asset for more than you paid and invested in it. In this case, only the gift tax would apply.
Can I Give Stock to a Child?
Yes, you can give stocks to minors and help them start on their financial future. However, children cannot directly own stocks, which means setting up a custodial account. The Uniform Gift to Minors Act and the Uniform Transfer to Minors Act guide how to set up the custodial accounts needed for this purpose. The custodian, typically a parent or guardian, handles the account until the minor reaches the age of majority, which can vary by state. However, despite this custodial arrangement, once the gift is made, it is irrevocable.
The Bottom Line
You have many options if you want to give someone shares of stock. You can transfer a stock certificate if it's held in certificate form, or you can have a broker handle the process if it's a digital stock. Some websites sell shares of stock to be used as gifts. It's always prudent to check with a professional before you make such a transaction so you understand all the tax and other implications.
