Can You Give Stock as a Gift?

How to Gift Stock

Whether you're looking to gift stock that's already in your portfolio or purchase new shares, there are a few different ways to go about it. Below are three simple strategies for giving stock to others.

1. Transfer Shares From Your Brokerage Account

A brokerage account allows you to buy and sell securities like stocks, bonds, mutual funds and exchange-traded funds (ETFs). You can use a brokerage account to gift stock in one of two ways:

• Transfer existing shares out of your brokerage account: This is a simple way to give stock to loved ones. The catch is that the recipient must have a brokerage account to receive them. You can also transfer shares to a charitable organization that is able to accept stock donations.
• Purchase new shares: While you can't use your brokerage account to buy stock on behalf of someone else, you can make the purchase through your own account and then transfer it to the recipient.

2. Open a Custodial Account for a Child

Giving stock to kids can be a great way to teach them about investing—and they'll also have years to benefit from compounding interest. A simple way to gift stock to minors is to open a custodial account. This is a brokerage account that's managed by an adult, but the securities held in the account technically belong to the minor. They'll assume control of the account when they come of age. This typically happens between 18 and 25, depending on what state they live in.

There are three main types of custodial investment accounts for kids:

• Uniform Gifts to Minors Act (UGMA) account: You can use a UGMA account to purchase stocks and other assets for a child. There are no contribution limits, and adults can kick in up to $18,000 per recipient in 2024 without paying taxes on that money (more on this shortly).
• Uniform Transfer to Minors Act (UTMA) account: This functions like a UGMA account but can hold physical assets as well, such as real estate and valuable family heirlooms. You might also be able to hold annuities and life insurance policies in a UTMA account.
• Custodial IRA: If your child has earned income, you could open a custodial individual retirement account (IRA) on their behalf. That can allow you to buy stocks and other assets for them—and give your child a jump on their retirement savings. Custodial Roth IRAs also allow for tax-free withdrawals later down the line.

3. Consider a Stock-Gifting Platform

Another option is using an app or website that allows you to purchase single shares as a gift. Platforms like GiveAShare will even send the recipient a stock certificate. If the gift is for a minor, the custodian's name will also appear on the registered stock. Meanwhile, Stockpile is an app that can be linked to a custodial brokerage account. That means you can purchase stock gifts and other securities right from your phone.

Benefits of Gifting Stock

Whether you're giving stock as a gift or are on the receiving end, you might be in for some financial benefits.

• Perks for the receiver: The recipient will receive an asset that might grow in value over time. That could lead to a nice payday if they eventually sell it, though be aware that those gains will likely count as taxable income. Some gifted stock may also pay dividends.
• Perks for the giver: Giving stock as a gift can help you avoid paying capital gains tax. Let's say you buy shares for $500 and sell them for $1,500. You'd normally have to pay taxes on that $1,000 gain. But you won't be on the hook for capital gains tax if you gift the stock because you aren't realizing those gains for yourself.

Rules for Gifting Stock

As mentioned earlier, you can give up to $18,000 per person in 2024 without incurring a tax penalty. Anything beyond that will count toward your lifetime gift-tax exclusion limit and must be reported on your annual tax return. In 2024, that limit is $13.61 million.

If you're transferring shares from a brokerage account, make sure you have the recipient's account information. From there, you can contact your brokerage firm to initiate the transfer. They will likely require you to fill out a form to jumpstart the process.

What to Consider Before You Gift Stocks

Gifting stock to others can be a win-win for both parties, but it's important to understand the tax repercussions. Here are some key takeaways to consider before moving forward:

• If the stock's value has increased since you bought it, you won't pay taxes on that gain. But if you sold the stock and gave the money to your loved one, you'd owe capital gains tax on that growth.
• The recipient might have to pay capital gains tax if they sell the stock later on. In most cases, their cost basis will be the same as yours. That means they'll use the price you originally paid for the stock when calculating their capital gain. If you bought a share for $10 and the recipient eventually sells it for more than that, they'll have to pay taxes on that growth. Note that tax-exempt organizations like nonprofits will not be taxed on gains.
• If the stock has gone down since you bought it, gifting it might not make sense. When you sell stock for less than you paid for it, that loss can help offset your total tax liability for the year. It might be better to sell it, report the loss and then give the proceeds to your loved one.
• Their tax liability will be different if you gift stock through your will. In this situation, they'll calculate their capital gains tax using the stock price on the date of your death. Let's say you bought stock for $10 and the price increases to $20 when you pass away. Your loved one could sell that stock for $20 and not owe any taxes on that growth.
• Consider a trust. If you plan on gifting a significant amount of wealth, creating a trust might be your best bet. Unlike a will, a trust does not go through the expensive and lengthy probate process. Trusts are also private and shielded from public record. You'll appoint a trustee to manage your trust assets and distribute them to your beneficiaries according to your wishes. You can also set up rules around when these financial gifts are given.

The Bottom Line

Stock can make a great gift that grows in value over time. Young children stand to benefit the most, thanks to the power of compound interest. But it's important to understand how the process works—and the potential tax consequences of giving and receiving stock as a gift. You'll want to look at the larger financial picture to help you decide if gifting stock makes sense.