Giving the gift of stock is a great way to teach someone about investing while also helping them kick start their portfolio. With consistent gifts of stock, you may help a loved one save for future goals, like buying a car or paying for college.
Below, we’ll dive into how you can give the gift of stock, plus any tax implications or other costs that you need to watch out for.
How To Get Stock
In order to give someone the gift of stock, you need to own that stock. The easiest way to get stock is to buy shares through a brokerage account.
You can open a brokerage account with many different companies—many offer online access or an app for your phone. Once you’ve opened your account and deposited money into it, you can place a buy order for the shares of the stock you want to purchase. It may take a few days for the transaction to settle.
Once the stock is in your account and you officially own those shares, you’re ready to give stock to someone as a gift.
Who To Give Stock To
You can gift stock to anyone—family or friends. Over the long term, it could prove to be a valuable gift if the stock price increases considerably. This can help someone kick start their wealth-building journey, or even aid in it significantly. And if the stock price does not rise, the recipient doesn’t technically lose money, since they didn’t buy it.
One person you may consider gifting stock to is a child, whether the recipient is your own child, a niece or nephew, or the child of a close friend.
Giving stock to a child may be a difficult, but rewarding thing to do. Many children likely prefer to receive something physical, like a new toy or electronics. However, giving shares of stock may be a good way to introduce them to the concept of investing or to give a more meaningful financial gift than simply cash.
Giving the gift of stock to a child is not the easiest process because brokerages will not let minors open their own account. The child will need a custodial account with an adult for you to be able to give them the gift.
The securities you’re giving the child are held in a custodial account and are transferred to the child once they’ve attained a certain age between 18 and 25 years. The age at which the securities are transferred depends on the rules of the particular state.
How To Gift Stock
Generally, the first thing you need if you want to give shares of stock to someone else is to own the shares yourself. You’ll need to buy shares in your own brokerage account if you don’t already own the stock you’re looking to give someone.
Once you own the shares, you’re ready to transfer them to the recipient. You should reach out to your broker directly to initiate the transfer.
To receive the stock, the recipient will need to have a brokerage account of their own. For a minor, that usually means a custodial account of some sort. If they don’t already have one, you can open one for them or work with their parents or guardians to open one for them.
Once they have a brokerage account, your broker can send the shares to their account for you. If both accounts are with the same broker, this is usually a quick and easy process. If you’re moving shares from one broker to another, the process may take longer and may involve paying fees. Once the shares arrive in the recipient's account, the gift is complete and they are the new owner of the shares.
Even one single share of a big name company can be expensive to buy. For budget-friendly gifts, you may consider buying fractional shares or shares of exchange-traded funds (ETFs) from a broker that allows such transactions.
Stock Gift Card
There are also brokerages, such as Stockpile, that offer services that let you purchase a gift card that can then be used to purchase stock. The recipient can then open an account on their own and redeem the gift card to purchase shares. Such gift cards can be sent via text or email, or can even be printed at home. There is also an option to send physical gift cards by mail. While Stockpile does not charge any brokerage fees, there may be other transaction costs involved.
What To Watch Out For: Rules, Regulations, and Reminders
While in the long run giving stock as a gift has its unique financial benefits, there are a lot of nuances that one needs to pay attention to while making such a transaction.
Tax Implications for Gift-Givers
The first thing to keep in mind when gifting stock is the gift tax.
For the year 2021, an individual can gift up to $15,000 (cash, stock, or even real estate) to someone else without incurring the gift tax. For you and your spouse, the combined annual gift tax exclusion is $30,000.
Gifts over that amount count toward your lifetime gift exclusion—$11.7 million as of 2021. However, if you haven’t gifted $11.7 million yet, you may not have to pay taxes on the amount that exceeds your annual exclusion. If you’re planning to leave a large estate to your heirs, you could consider reducing its size by effectively utilizing the annual gift tax exclusions.
Tax Implications for Gift-Receivers
You also have to consider the tax implications for the recipient. When you give the gift of stock, the recipient inherits the cost basis and holding period of the stock you gave. If you bought the shares long ago and they’ve appreciated by a large amount, the recipient might owe a significant amount of tax on the returns when they sell the shares. This is known as the capital gains tax.
For example, let’s say you bought one share of stock for $5 and gifted it to a friend. If the friend then sold it when the stock price was $50, they’d have to pay tax on $45 ($50 - $5), irrespective of the price of the stock when they received the gift.
Tax implications of gifting stock differ from taxes when the stock is inherited after someone passes away. The cost basis of inherited stock updates to be the price per share on the day the decedent passed.
Giving shares as a gift instead of selling them and giving cash means you as the gift-giver can defer paying capital gains taxes. The recipient of the gift pays tax on the returns when they sell the shares. However, depending on the price appreciation of the stock, if they are in a lower tax bracket compared to yours, they may end up paying lower taxes.
There are complex rules surrounding investment returns earned by minors. If the child is receiving the stock as a gift and their unearned income exceeds $2,200 it may be taxed at a higher rate.
Transaction Costs To Consider
If you’re giving the gift of stock, you need to have a way to buy the shares and a way to transfer those shares to the recipient.
Some brokerages charge fees each time you buy or sell shares. These commissions will vary from broker to broker, with some having no commissions and others charging a few dollars per transaction.
Once you’ve purchased the shares, your broker might charge a fee for transferring the shares to another account. This is most common when sending shares to a brokerage account managed by another company.
Creative Stock Gift Presentation Ideas
One of the hard parts of giving the gift of stock can be finding a way to present it to the recipient. Because what you’re giving is essentially an electronic asset, there’s nothing physical to wrap and hand over.
Though stock certificates are largely a thing of the past, one option is to print out a replica certificate to give to the recipient. This may be appreciated if you’re giving shares of stock of one of their favorite brands or companies. Someone who is a fan of a company like Disney may enjoy receiving a mock certificate with Disney art on it, for example. Some companies may even provide such services for a fee.
You may also want to pair your stock gift with a physical present. You may be able to tie the gift to the stock you’re giving. For example, maybe you give someone a gift card to the retail store of the company you’re buying them shares of, or products related to the stock you’re giving them.
This lets the recipient unwrap a present and gives them some physical gifts to enjoy while also opening the door for you to talk about stock ownership and investing.
Benefits of Gifting Stock
There are quite a few benefits to giving stock as a gift.
Over the long-term, gifting a stock can prove to be a valuable gift if the stock appreciates. And even if it doesn’t, the person who receives the stock doesn’t have to bear the loss since you paid for it. It’s also a good way to introduce and encourage children or teens to think about investing. Also, giving fractional shares or shares of an ETF may be a way to gift stock without breaking the bank.
In addition, gifting stock may have some beneficial tax implications. One is the annual exclusion limit, a gift under which is not liable for the gift tax. By gifting stock you also, in effect, defer paying capital gains taxes since the tax is paid by the recipient of the stock when they sell the shares you gifted them.