Stocks are a popular investment, with 46 percent of Americans owning a stock-related investment in 2023, up from 43 percent in 2023, according to a recent Bankrate survey.
But stocks can also be great gifts, whose value far exceeds the initial gift amount. In many ways, it is the gift that keeps on giving.
Giving stock isn’t as simple as placing an order with Amazon, and potential givers need to pay attention to a few rules so they stay on the right side of the law.
Key learning points
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Unlike conventional gifts, shares have the potential for long-term growth. It can be a great way to build wealth.
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You can gift shares to children through custodial accounts. For adults, you can transfer shares from an existing investment account to the recipient’s investment account.
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You can donate up to €17,000 in calendar year 2023 (€18,000 in 2024), without being charged gift tax. If the shares increase in value, the recipient will owe capital gains tax when he sells the shares.
How to donate shares
If you are considering giving stock, there are a few options for doing so:
- Buying shares specifically for a child: This can be done through a custodial account over which you or another family member has control.
- Transfer shares from an existing investment account: Contact your broker to help complete the transfer electronically or by stock certificate.
- Give shares with an app: Find an online app that allows you to give shares.
In any case, the recipient must have a securities account to receive the shares. A minor child must have a custodial account, while an adult can have a regular account. Although you could transfer the shares as physical certificates, it is only a novelty to do so.
Either way, you want to stay below the legal thresholds that can cause tax headaches.
You can safely donate stock under the annual gift exclusion, which allows individuals to gift up to $17,000 (for 2023) or $18,000 (for 2024) annually to any number of recipients without having to pay gift taxes. A married couple who applies jointly can declare double that individual amount annually. To qualify for this year’s exclusion, you must make the gift before the end of the calendar year. Otherwise, your gift will count toward next year’s exclusion.
Going through a broker can take time and paperwork, so if you’re looking for an easier way to gift stocks, 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 want to start 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 purchase individual stock certificates as gifts. Traditional brokers charge high fees for physical stock certificates – if they offer them at all – so this company offers a unique option, especially for children who can see and hold on to their gifted investment. The company charges $39 on top of the share price, and the recipient receives a framed share certificate. They become a true shareholder of the company and are entitled to everything a shareholder receives, including annual reports and declared dividends, according to the company’s website.
Benefits of donating shares
Giving shares as a gift has advantages, both for you and for the recipient.
It’s a smart way to get kids interested in investing, and helps promote financial literacy from an early age. Unlike conventional gifts, stocks have the potential for long-term growth, making them a thoughtful choice if 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 to spark interest in the stock market, a company or a particular sector,” said Eva Victor, senior director of high net worth estate planning. attorney at Northwestern Mutual.
Meanwhile, donating stock to charity can provide tax benefits. When you donate stock to charity, it is possible for both you and the nonprofit to avoid any capital gains on the asset. You can claim a deduction for the value of the shares, legally avoiding tax, and the charity gets the full benefit of the shares. It’s a win-win for both you and the causes you hold most dear.
Donating shares to a good cause
While you’re in the gift-giving spirit, you might also consider donating stock to charity and receiving a tax write-off for the fair market value of the stock. When you donate appreciated property, you avoid the tax burden on the profits, take a tax deduction, and help someone, too.
“Applicable limits for adjusted gross income are 30 percent of adjusted gross income for gifts of stock held for more than one year, with a five-year carryover for unused deductions,” says Victor.
Make sure your favorite charity qualifies for tax-deductible contributions and receive any donations before the end of the year to secure a write-off. If you’re not quite sure what you want to finance but want to take advantage of a tax write-off this year, look into donor-advised funds, which allow you to take a large deduction this year but spread the money over a certain amount. period of several years.
Tips for gifting shares to family members
To optimize the gift and avoid other potential complications, pay attention to the fine print, especially if your gift is particularly large.
Not sure which shares to give as a gift? You will want to choose a company that piques the recipient’s interest And has long-term growth potential. However, for children, it may be more important to choose a stock they have a connection with (think Disney, Nike, Starbucks, Coca-Cola, etc.) than choosing a stock with excellent valuation figures.
Here are a few other tips for gifting stocks to loved ones.
Discuss the exclusion of gifts
If you exceed the gift exclusion in a given year, you can use your lifetime gift exclusion – worth $12.92 million in 2023 ($13.61 million in 2024) – to protect the excess gifts. But using that shelter is generally less tax efficient, because of the way gifts are taxed relative to inherited shares.
“Recipients will transfer the donor’s cost basis for gifts made during the donor’s lifetime, and will then realize and pay capital gains taxes upon the sale of the shares,” Victor says. ‘While the appreciated shares are included in the gross assets of the donor and have been passed on [down] generally receive an increase in basis upon death, so that no capital gain is realized upon sale.”
In short, inheriting appreciated stock is more tax efficient than receiving it as a gift.
Consider a trust
If you want to give a gift of significant value, consider using a trust. The trust structure can help you “delay the recipient’s access and control until after the age of majority,” says Victor.
By placing certain restrictions on the money, the trust can ensure that the gift is used more wisely later in life.
If you are thinking of going this route, it is advisable to consult an attorney experienced in estate planning, as trusts are a complex area of law.
In short
Giving shares can be a good way to teach younger family members about entrepreneurship and how to invest. However, be sure to consider the tax and estate implications of making a significant donation, and speak to an advisor if you have any questions.
