What present is more considerate than a wad of cash, doesn’t involve leaving the house, and lasts longer than a membership to the jelly-of-the-month club? Stock.
Given the ongoing supply chain delays, this year might be the best year to give stock as a gift. This indicates that the presents you want to buy might not be available, and even if they are, inflation might have driven up the price of them.
Giving stock as a gift is simpler than you might imagine, and there might even be some advantages for you.
Also Read: Is The Stock Market Going to Crash In 2023
How to Give Stock as a Gift？
1. Set Up a Custodial Account for Kids
For their children, parents can open a custodial brokerage account and transfer stocks, mutual funds, and other assets there. A direct purchase of assets for the account is another option. When the child reaches a certain age, they become the owner.
Read More: Custodial vs Non-Custodial Wallets – Difference & Which One to Choose
This is a fantastic way to teach children about investing or specific industries while also piqueing their interest in money matters. By giving children a stock that will increase in value over time, you can teach them about short- and long-term investments. However, keep in mind that there is a so-called “kiddie tax” imposed by the If a child earns more than $2,200 in interest and dividends, the IRS should be notified.
2. Set Up a DRiP
DRiPs, also known as dividend reinvestment plans, are another choice for giving stocks. These are programs that routinely reinvest stock dividends, enabling the stock to increase through compound interest.
3. Gifting to a Spouse
As long as both parties are citizens of the United States, there are typically no tax repercussions when gifting stocks to a spouse. citizens. A spouse may give their partner either a present interest or a future interest in shares, meaning the recipient spouse will either receive the shares right away or at a future date.
If the recipient spouse is a foreign national, the IRS states that the recipient spouse must be a U.S. citizen, there is an annual gift tax exclusion of $159,000. Taxes would apply to any sum in excess of that.
4. Virtual Transfers and Stock Certificates
If the recipient has a brokerage account, anyone can transfer shares of stock to them. Simple personal and account information is required for this type of gifting. Shares can be bought in an account or transferred after being purchased. The option to gift stocks on a recurring basis is available with some brokers.
A stock certificate can also be purchased by an individual and given as a gift to the recipient, but doing so is more expensive and time-consuming for both parties. A physical stock certificate must be signed by the owner in the presence of a guarantee, such as their bank or a stock broker, in order to transfer ownership.
5. Gifting Stock to Charity
Providing the charity is set up to receive them, another choice is to donate stocks as a gift to it. Given that neither the giver nor the recipient of the gift must pay capital gains taxes because they are both tax-exempt organizations, this can be advantageous to both parties. Additionally, the donor might be able to claim a tax deduction for the value of the stock.
An option for donors who are unsure of which charity to support is a donor-advised fund. The fund will distribute the donation to the charities over a number of years, even though the giver can deduct their gift from their taxes in the year that they make it.
6. Passing Down Wealth
A better way to transfer wealth to family members than selling stocks and paying taxes is by giving them as gifts. Giving away cash, stocks, or a combination of both will allow you to transfer up to $15,000 per person, per year, starting in 2021. Therefore, a couple is not required to pay gift taxes when giving one person $30,000 as a gift.
If a person wants to transfer stocks upon their death, they have a few options, including:
• Integrate it into their will.
• Go over a trust’s beneficiary designation.
• Make an inherited IRA.
• Set up a transfer on death designation in a brokerage account.
To determine the taxes and cost basis for this option, one must consider all available options as well as their unique situation.
7. Gifting through An App
Finding a stock gifting feature-rich investing app is an additional choice.
8. Gift Cards
You might be surprised to learn that gift cards can be used to purchase stocks. Both physical and digital gift cards are available.
The Benefits of Gifting Stocks
Gifting stocks can provide a number of benefits for both the giver and the recipient. Here are some of the key advantages:
- Potential for long-term growth: Stocks have the potential to appreciate in value over time, which can provide long-term growth for the recipient’s investment portfolio.
- Tax benefits: Gifting stocks can have tax benefits for both the giver and the recipient. The giver may be able to avoid capital gains taxes that would be incurred if they sold the stocks themselves. The recipient may also be able to avoid capital gains taxes if they sell the stocks at a later date.
- Diversification: If the recipient’s investment portfolio is heavily weighted in a particular sector or asset class, gifting stocks can provide much-needed diversification.
- Education: Gifting stocks can be a great way to teach children or young adults about investing and the stock market.
- Charitable giving: Gifting stocks to a charity can provide tax benefits for the giver while also supporting a cause they believe in.
Overall, gifting stocks can be a thoughtful and financially savvy way to show someone you care. It can provide long-term growth potential, tax benefits, diversification, education, and charitable giving opportunities.
Who Can You Gift Stocks To?
You can gift stocks to a variety of people or entities, including:
- Family members: You can gift stocks to your spouse, children, parents, siblings, or other family members.
- Friends: You can gift stocks to close friends who you believe would benefit from the investment.
- Charities: You can gift stocks to charitable organizations, such as non-profits or foundations.
- Educational institutions: You can gift stocks to educational institutions, such as universities or schools.
- Trusts: You can gift stocks to a trust that you have set up for the benefit of a particular individual or group.
It’s important to note that gifting stocks to someone else may have tax implications for both the giver and the recipient. Before gifting stocks, it’s a good idea to consult with a financial advisor or tax professional to understand the potential tax implications and to make sure the gift is structured in a way that is most beneficial for both parties.
Is There a Stock Gift Tax?
Yes, there can be tax implications when gifting stocks. Here are some important tax considerations:
- Gift tax: If you gift stocks to someone and the value of the gift exceeds the annual gift tax exclusion amount (currently $15,000 per recipient per year), you may need to file a gift tax return and potentially pay gift tax. However, there are some exemptions and exclusions that may apply, such as the lifetime gift tax exemption (currently $12.06 million).
- Capital gains tax: If you gift appreciated stocks to someone, they will generally assume your cost basis in the stock. If they sell the stock in the future and it has appreciated in value, they may be subject to capital gains tax on the increase in value.
- Step-up in basis: If you gift stocks to someone as part of your estate plan and they inherit the stocks after your death, the stocks will generally receive a step-up in basis to the fair market value at the time of your death. This can reduce or eliminate the capital gains tax that would be due if the recipient sells the stocks in the future.
It’s important to note that tax laws and regulations can be complex and can vary depending on individual circumstances. Before gifting stocks, it’s a good idea to consult with a financial advisor or tax professional to understand the potential tax implications and to make sure the gift is structured in a way that is most beneficial for both parties.
What Are the Best Stocks to Give as Gifts?
The best stocks to give as gifts depend on several factors, such as the recipient’s interests, investment goals, and risk tolerance. Here are some tips for choosing stocks to give as gifts:
- Consider the recipient’s interests: Think about the recipient’s hobbies, career, and personal interests. For example, if they work in the tech industry, they may appreciate stocks in a technology company.
- Choose a reputable company: Look for companies with a solid reputation and a history of stable performance. Blue-chip stocks in well-established companies can be a good choice for many people.
- Diversify the portfolio: Consider gifting stocks in different sectors or industries to help diversify the recipient’s investment portfolio.
- Avoid high-risk investments: Unless the recipient has a high-risk tolerance and is specifically interested in high-risk investments, it’s generally best to avoid giving stocks in speculative or volatile companies.
- Consider the long-term potential: Look for companies that have a solid long-term growth potential. Stocks in companies with a strong competitive position, innovative products or services, and a solid financial track record can be a good choice.
Remember, giving stocks as gifts can be a thoughtful and meaningful gesture, but it’s important to do your research and consider the recipient’s investment goals and risk tolerance before making a decision. It’s also a good idea to consult with a financial advisor or stockbroker to help choose the best stocks and to understand the potential risks and tax implications.
Gifting Stocks Alternatives
If you’re considering gifting stocks but are unsure if it’s the right option, there are several alternatives that you may want to consider:
- Cash: Giving cash as a gift can be a simple and straightforward option, allowing the recipient to use the money as they see fit.
- Mutual funds or exchange-traded funds (ETFs): Mutual funds or ETFs can be a good alternative to gifting individual stocks, as they provide exposure to a diversified portfolio of securities.
- Bonds: Gifting bonds can provide a fixed income stream for the recipient, and may be less volatile than stocks.
- Real estate: If you’re looking for a more substantial gift, you may want to consider gifting real estate. This can be a complex process, but can provide long-term benefits for the recipient.
- Education savings accounts: If you’re gifting to a child or young adult, you may want to consider contributing to an education savings account, such as a 529 plan.
It’s important to consider the recipient’s needs and goals when deciding on a gift, and to consult with a financial advisor or tax professional to understand the potential tax implications and to make sure the gift is structured in a way that is most beneficial for both parties.
How to Gift Stocks FAQ
Can You Buy Stocks as a Gift?
Yes, you can buy stocks as a gift for someone else. You can do this in a number of ways, including:
- Transfer stocks from your own account: If you already own the stocks, you can transfer them to the recipient’s account as a gift. This can be done through your brokerage firm, and may require some paperwork.
- Purchase stocks in the recipient’s name: You can buy stocks in the recipient’s name using their personal information, such as their name, social security number, and brokerage account information.
- Purchase stocks in a custodial account: If the recipient is a minor, you may want to consider purchasing the stocks in a custodial account. This allows the stocks to be held in the minor’s name, but managed by a custodian until the minor reaches the age of majority.
When buying stocks as a gift, it’s important to consider the recipient’s investment goals and risk tolerance. It’s also important to understand the potential tax implications, including any gift taxes or capital gains taxes that may apply. You may want to consult with a financial advisor or tax professional to understand the best way to structure the gift and to ensure that it’s done in a way that is most beneficial for both parties.
How Do You Gift a Share of Stock?
Gifting a share of stock can be done in a few different ways, depending on whether you already own the stock or need to purchase it.
If you already own the stock:
- Transfer the stock to the recipient’s brokerage account: You can transfer the stock to the recipient’s brokerage account as a gift. This can usually be done through your brokerage firm, and may require some paperwork.
- Request a physical stock certificate: Some companies still issue physical stock certificates, which can be framed and presented as a gift. You can request a physical certificate from the company’s transfer agent.
If you need to purchase the stock:
- Open a brokerage account: If you don’t already have a brokerage account, you’ll need to open one in order to purchase the stock.
- Buy the stock in the recipient’s name: When purchasing the stock, make sure to enter the recipient’s personal information, such as their name and social security number, so that the stock is registered in their name.
- Consider setting up a custodial account: If the recipient is a minor, you may want to consider setting up a custodial account to hold the stock until the minor reaches the age of majority.
When gifting a share of stock, it’s important to consider the potential tax implications, including any gift taxes or capital gains taxes that may apply. You may want to consult with a financial advisor or tax professional to understand the best way to structure the gift and to ensure that it’s done in a way that is most beneficial for both parties.
Can You Gift Stock on Robinhood?
Yes, you can gift stock on Robinhood. Here’s how to do it:
- Open the Robinhood app and go to the “Account” tab.
- Tap on “Gifts” and select “Send a Gift.”
- Choose the stock you want to gift and the recipient’s email address.
- Set the gift amount, which can be either a dollar amount or a number of shares.
- Include a personalized message, if desired.
- Review and confirm the gift details, and then submit the gift.
The recipient will receive an email notifying them of the gift, and they will need to create a Robinhood account in order to claim the gift. The stock will then be transferred to their account.
It’s important to note that gifting stock on Robinhood may have tax implications, and you may want to consult with a financial advisor or tax professional to understand the potential tax consequences and to ensure that the gift is structured in a way that is most beneficial for both parties.
What Are the Best Stocks to Give as Gifts?
The best stocks to give as gifts can vary depending on the recipient’s interests and investment goals. However, here are a few options that may be worth considering:
- Blue-chip stocks: Blue-chip stocks are typically large, established companies with a long history of stable earnings and dividends. Examples include companies like Coca-Cola, Apple, and Johnson & Johnson. These stocks can be a good choice for someone who is looking for a stable, long-term investment.
- Growth stocks: Growth stocks are typically younger companies with high potential for growth. Examples include companies like Tesla, Zoom Video Communications, and Shopify. These stocks can be a good choice for someone who is willing to take on more risk in exchange for the potential for higher returns.
- Dividend stocks: Dividend stocks are companies that pay out a portion of their earnings to shareholders as dividends. Examples include companies like Verizon, AT&T, and Procter & Gamble. These stocks can be a good choice for someone who is looking for a steady income stream.
- Stock index funds: Instead of gifting individual stocks, you may want to consider gifting a stock index fund, which provides exposure to a diversified portfolio of stocks. Examples include funds like the S&P 500 Index Fund or the Nasdaq-100 Index Fund. These funds can be a good choice for someone who is looking for broad exposure to the stock market.
When selecting stocks to gift, it’s important to consider the recipient’s investment goals, risk tolerance, and personal preferences. You may want to consult with a financial advisor or do your own research to find stocks that may be a good fit for the recipient.
Can You Give Stock to a Child?
Yes, you can give stock to a child. However, the process of gifting stocks to a child can be a little more complicated than gifting to an adult.
If the child is a minor, they cannot own or control the stock until they reach the age of majority (18 or 21, depending on the state). In this case, you may want to consider setting up a custodial account, which allows an adult to manage the stock on the child’s behalf until they reach the age of majority.
There are two types of custodial accounts that can be used to gift stock to a child:
- UTMA (Uniform Transfers to Minors Act) account: This type of account allows you to gift stocks, as well as other assets like cash and real estate, to a minor. The assets in the account are managed by a custodian (usually a parent or guardian) until the child reaches the age of majority.
- UGMA (Uniform Gifts to Minors Act) account: This type of account is similar to a UTMA account, but it only allows you to gift stocks and cash. Real estate and other assets cannot be held in a UGMA account.
When gifting stocks to a child, it’s important to consider the potential tax implications. Depending on the value of the gift, gift taxes or capital gains taxes may apply. You may want to consult with a financial advisor or tax professional to understand the best way to structure the gift and to ensure that it’s done in a way that is most beneficial for both parties.
