In 2023, nearly half of Americans—46 percent—held stock-related investments, a slight uptick from 43 percent in the previous year, making stocks an increasingly trendy yet savvy gift option. However, navigating the nuances of gifting stocks requires a keen eye on legal boundaries to keep everything above board.
Key Insights to Keep in Mind
- Unlike typical presents, stocks offer the unique advantage of potential growth over time, making them a clever path to wealth-building.
- Stocks can be gifted to minors through custodial accounts, while adults receive shares transferred directly into their brokerage accounts.
- The annual gift tax exemption for 2024 lets you hand over up to $18,000 worth of stock without triggering tax consequences; recipients face capital gains tax only when they sell appreciated shares.
Ways to Pass Along Stock
Thinking about giving stock? Several avenues exist for making it happen:
Buying Stock for a Minor
Setting up a custodial account is the go-to method for minors, while adults simply use a standard brokerage account. Although handing over physical stock certificates still exists, it’s mostly a nostalgic gesture and tends to be costly and cumbersome.
Regardless of approach, aim to stay within legal gifting limits to prevent tax woes.
Understanding the Annual Gift Exclusion
Thanks to the annual gift exclusion, you can transfer up to $18,000 worth of stock in 2024 to any number of people without incurring gift tax. Couples filing jointly can double that amount. To qualify for this year’s exemption, ensure the gift occurs before December 31; otherwise, it will count towards the next year’s limit.
How to Gift Stock to Children
Going through a broker might feel like a paperwork slog, so if you want a more straightforward path, certain services let you purchase single stock certificates as tangible gifts. Traditional brokerages either charge steep fees or have dropped physical certificates altogether, but some companies fill this niche, especially for kids who can cherish a framed share certificate.
These services usually add a flat fee—around $39—to the stock’s cost, then send the recipient a framed stock share certificate. This turns the child into a bona fide shareholder, complete with rights to dividends and shareholder communications.
Alternatively, custodial accounts offered by various investment platforms present a hassle-free solution for gifting stocks to youngsters.
Advantages of Giving Stock as a Present
Stock gifts offer mutual benefits: they spark an early interest in investing for children while planting seeds of financial literacy. Unlike everyday gifts, stocks carry the chance of long-term value appreciation, making them a thoughtful choice when an immediate monetary payout isn’t the goal.
Eva Victor, a senior high-net-worth wealth planning attorney at Northwestern Mutual, notes, “Stock gifts can be an excellent way to introduce kids or grandchildren to saving and investing or to spark enthusiasm for the market, a company, or even an entire industry.”
Moreover, donating stocks to charities opens doors to tax advantages. When you gift appreciated stock to a nonprofit, you and the organization alike avoid capital gains taxes, while you score a tax deduction based on the stock’s fair market value—helping you give back without financial penalty.
Victor adds, “The adjusted gross income limit for charitable stock gifts held over one year is 30 percent, with a five-year carryforward available for unused deductions.”
To maximize tax benefits, verify your favorite charity’s eligibility for deductible contributions and time donations before year-end. If certainty about which cause to support is lacking, donor-advised funds offer a way to claim a significant deduction now while distributing grants over multiple years.
Stock Gifting Strategies for Family
To make the most of your gift and sidestep pitfalls, scrutinize the details—especially when the gift is on the generous side.
Picking the right stock is half the battle. Aim for companies that captivate the recipient’s interest and boast solid growth prospects. For kids, familiarity may trump financial metrics; popular brands like Disney, Nike, Starbucks, or Coca-Cola usually resonate better than obscure blue chips.
Mind the Gift Tax Threshold
Surpassing the $18,000 annual exclusion invokes your lifetime gift tax exemption—$13.61 million in 2024—to cushion the surplus. But tapping into this lifetime allowance is less tax-savvy, since gifts incur different tax treatments than inherited stocks.
Recipients inherit the donor’s cost basis for lifetime gifts and will face capital gains tax upon sale. Establishing a trust can delay beneficiary control past adulthood, helping ensure funds are used responsibly later, a tactic championed by Victor.
Legal counsel specializing in estate planning is advisable if you pursue complex gifting structures like trusts.
Summary Table: Gift Limits & Tax Implications (2024)
| Individual Stock Gift | $18,000 | $13.61 million | Capital gains on sale (cost basis carried over) |
| Married Couple Joint Gift | $36,000 | $13.61 million | Capital gains on sale (cost basis carried over) |
