How To Give Stock as a Gift
An Overview of Ways You Can Give Away Shares of Stock to Friends and Family
Whether it is for Christmas or birthdays, graduation or "just because", people sometimes write me wanting to know how to give stock as a gift. It's a very good question! In this overview, I'll share with you some of the more common ways you can gift shares of your favorite stock to children, grandchildren, nieces, nephews, friends, or even charities. Depending upon your situation, some methods may be more cost effective and/or tax advantageous than others, so it's important that you consult your own financial advisor, accountant, and attorney to make sure your gifts are structured in the most optimal way for your unique circumstances.
How to Give Stock as a Gift with No Restrictions
If you want to give stock as a gift with no strings attached - completely, totally unencumbered so the person can do whatever he or she wants with it the moment the take possession of it - there are several ways to achieve this, including re-titling your existing stock holdings and/or setting up a Direct Stock Purchase Plan or Dividend Reinvestment Plan in the name of the recipient, both of which I'll discuss in detail below. Most are fairly inexpensive and, in a few cases, completely free.
Give Stock By Re-Titling Your Existing Stock Holdings
If you hold the shares you want to gift in a brokerage account or dividend reinvestment plan of your own, you can contact the institution and fill out forms to re-title some of your holdings in the name of the person to whom you want to gift the stock. You can even setup regular gifts at predetermined intervals, such as the 5th of every month, or the second Tuesday of each quarter.
An illustration: Charles Schwab & Company has a form called Letter of Authorization for Movement of Funds that allows its clients to create scheduled transfers of shares to third parties. Imagine after a career of successful investing, you had built up a very large position in Procter & Gamble. Once you had verified all of the information, you could say, "I want you to gift 100 shares of Procter & Gamble to my son every month by taking the stock out of my account and putting it into his brokerage account".
Alternatively, if your son didn't have a brokerage account at Schwab, the firm could send him a physical stock certificate or have the shares registered directly in your son's name through the Direct Registration System (fees may apply for either of these services depending on your broker).
As of December 2014, Schwab charges a $75 fee for re-titling assets (assuming you don't want a physical stock certificate, which is far more expensive and won't do you much good now that they've gone the way of the Dodo.)
Work With the Person to Whom You Want to Give Stock as a Gift to Set Up a Direct Stock Purchase Plan or Dividend Reinvestment Program Account in Their Name
With few exceptions, this couldn't be easier. You fill out a form, mail in a check, and that's it. The person receives a statement showing the number of shares they own, and can then buy more by mailing in additional checks, having automatic withdrawals set up from their bank account, or reinvesting any cash dividends their new stock pays. If you want to buy them more shares, many plans will allow you to write another check and send it in yourself, or write it directly to the person if you trust they'll use the funds to buy the stock you want to gift them.
What if you want a physical representation of ownership? Though stock certificates are becoming rare and, in some cases, companies refuse to issue them, you can check with a service like OneShare.com. They can title the stock in the name of the gift recipient then you might be able to use that share to setup the DRIP. In my own family, this is how I helped my youngest sister begin building her ownership stake in the Coca-Cola Direct Stock Purchase Plan. She still has her first framed certificate, with 99%+ of her remaining held under direct registration.
How to Give Stock as a Gift If You Want to Place Restrictions on the Shares
What if you don't want the person to whom you are making a gift of shares to have unrestricted access to the stock? Depending on your situation, you have several options.
For Minors, Setup a Brokerage Account or Direct Stock Purchase Plan Registered Under the Uniform Transfers to Minors Act of Your State (UTMA)
These custodial accounts are unique because they allow you to name a custodian who has a duty to manage the money for the welfare of the minor, but the property belongs to the minor since gifts to the UTMA are irrevocable. Depending on the state, you can decide at the time to account is established whether you want the minor to have the right to take possession of the assets at the age of 21 or some other age (a few states allow you to defer to as long as the child's 25th birthday, while some will let you set it as young as 18). The process of opening a UTMA is as easy as opening any other type of account. In fact, I just setup a couple for my own niece and nephew.
Establish a Trust Fund and Transfer Shares of Stock To It
Whether you want to give shares of stock to a minor or adult, the ultimate option in terms of flexibility is a trust fund. I've put together a guide for beginners that links to several articles about trust funds, but the short version is that you can write a trust declaration that splits the legal title of the property between a trustee, who has fiduciary duty to manage it with the utmost standard of care, and an economic beneficiary, who gets to enjoy the property in a way that you determine. You can even use the trust to get a tax write-off for yourself by including some charitable cause in it.
Imagine that you were sitting on a block of 10,000 shares of Royal Dutch Shell Class B ADR. You decide that you want to give the stock as a gift to your three grandchildren. You hire an attorney to write a basic trust document (a simple, straightforward trust will probably run you around $1,000 in legal fees, though this could vary wildly by location) that says you are transferring all 10,000 shares to the trust itself. For the rest of their lives, 100% of the dividends paid on the stock in the trust is to be distributed to your grandkids at Christmas. When the last of them dies, the whole block - whatever it is worth - is to go to your alma mater to establish scholarships.
You could either convert your existing brokerage account into a trust by filling out the paperwork (some brokers will even let you keep the same account number so nothing but the ownership changes) or you can set up a separate, new account under the trust's name and have the stock transferred to it through retitle, as we've already discussed.
In this case, you were able to give the stock as a gift but the grandkids could never touch it. Instead, they got to live off the dividends. Over the past 12 months, this would have amounted to $34,400. Each grandkid would have received a check for roughly $11,467. Over time, the checks should continue to grow larger. In this illustration, you didn't restrict how that money could be used, but if you had wanted, you could have limited it to buying a home, regularly purchasing a new wardrobe, or paying for groceries. Trusts are extremely flexible and almost all provisions will be upheld unless they violate a law or require someone to behave in a way that is considered contrary public policy.
An additional benefit of using a trust is that you aren't limited to gifting stock. If the trust is well-written, you can later contribute other investments, including bonds, shares of mutual funds, real estate, and more.