Ways to give stock as a gift
There are different ways to give stock as a gift, from transferring a physical certificate to transferring stock through a broker. Let’s take a look at some of the choices for gifting stock:
1. Use a broker to gift stocks
These days, most of us hold stocks in a brokerage account, and all the transactions and records of ownership are managed electronically. If you want to gift a stock through a broker, you will need to provide explicit directions for the transfer.
Note that the recipient will need an account where they can receive the gift of stock. Check whether there are special requirements if the recipient has an account at a different institution than you.
Many brokers allow you to fill out an online form that includes information for both the sender and the recipient. You will generally need the following information, but double-check the specific requirements of the brokers involved:
For the sender:
- Your account name
- The address associated with the account
- Account number
- Description of the stock, including the company name and the number of shares you’re gifting
For the recipient:
- Account name
- Account number
- Social Security number
If you want to send stock on someone’s birthday or as a holiday gift each year, it’s possible to set up a recurring transfer as a way to gift stock on a regular basis.
2. Transfer a stock certificate
Physical stock certificates are much less common than they used to be. However, if you want to give a share, and you have a physical certificate, there are some steps you need to take in order to transfer ownership.
- This process must be completed in front of a guarantor, which is usually someone who is authorized for these transactions at a bank or a brokerage.
- You must endorse the stock certificate in front of the guarantor.
- You may also need to fill out a transfer form, which might be located on the back of the physical certificate.
- Once you’ve taken care of that, you can transfer ownership of the stock to the recipient.
3. Give a share
In recent years, it’s become increasingly popular to buy stock as a gift. There are different ways to give shares to children, or to friends and family.
If you have children, you can set up a custodial account on their behalf. This allows you to give a share whenever you want to add shares to their portfolio. You can also add money to their account and then use that to buy appropriate shares. This is one of the easiest ways of learning how to gift stock.
Be aware that with a custodial account, your child gains full control when they reach the age of majority. Once they are no longer considered a minor, they can do what they want with the stock in the account.
Virtual stocking stuffer
You can also give a share as a virtual stocking stuffer for friends and family. For example, websites such as Stockpile and GiveAShare allow you to purchase a share and make it redeemable for friends or family. Instead of going through the trouble of transferring stock, you simply purchase a share, or a gift card with a redemption value, which friends or family can use to add stock to their own accounts.
In any case, the recipient can use the gift how they want. They can choose to sell the stock and use the proceeds how they wish. They can keep the cash, or they can take the proceeds and buy shares of a different stock.
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What are the benefits of gifting stocks?
One of the biggest benefits of learning how to gift stock is that it can help others build their wealth. Stocks are the gift that keeps on giving, and a recipient can reap the benefits of a potentially appreciating asset.
- Unlike a video game or some type of consumable gift, a stock won’t break and it can’t be used up. Plus, it’s less likely to depreciate in value. In fact, it can increase in value and provide a basis for future wealth. While there’s no guarantee that the stock will always increase in value, historically speaking, stocks are generally a good bet.
- Another benefit when you give stock as a gift is that you have the potential to spark an interest in investing and learning about the market. This can be a way to help a teenager or someone else in your life improves their finances. This can be a lifelong gift and lesson.
- As a giver, you can also reap benefits. When you give stock as a gift, you transfer the capital gains tax liability. For someone who wants to gift stock to charity, this can be especially valuable. The charity benefits from the appreciation and you can deduct the market value of the stock as a charitable donation. Make sure you follow the proper steps and protocols and consult with a tax professional before you move forward with this approach to a charitable donation.
Understanding the tax implications of giving a share
It’s important to note that when you transfer stock or give a share, the recipient will become responsible for capital gains when they sell. When the owner of stock sells for more than the stock was originally purchased for, the difference is known as a capital gain. The government expects you to pay taxes on these capital gains.
As a result, it’s important to make sure recipients know that they will be responsible for the capital gains tax when they sell. Capital gains taxes are figured differently based on whether the asset has been held for a long term or a short term. A tax professional can help ensure that taxes and other obligations are figured appropriately.
When you give stock as a gift, you’re providing the recipient with an asset that can increase in value and provide a foundation for future wealth. You’re also promoting better financial stability, as you could inspire them to build a better financial situation.
Consider different processes for how to gift stock, and then move forward with the avenue that makes sense for you and the recipient.
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