Can I give stocks as a gift to a child ?
Gifting stocks refers to the process of transferring ownership of stock assets from one individual to another. Such gifts can range from individual shares of a company’s stock to entire portfolios consisting of various securities. The types of stocks that can be gifted, which generally include publicly traded stocks, mutual funds, and even exchange-traded funds (ETFs). Stocks have the potential to be the gift that keeps on giving, especially if it’s given to a young child.
Annual Gift allowance
You can gift stocks through a custodial account or simple transfer. There could be a tax advantage for you, if you’re giving stocks you own. For the 2025 tax year, the annual gift allowance threshold is $19,000 for single and $38,000 for married filing jointly without triggering the gift tax. When you gift stocks to your child, he/she assumes the cost basis and tax liability. He/She might pay Capital gains taxes when they sell the stock, based on the difference between selling price and the original price paid by the giver.
For example, If you bought the stocks for $1000 and they are worth $2000 when gifting, he/she will have cost basis of $1000. If they sell the stocks at $3000 in future, they will owe capital gain tax on $2000.
Gifting while alive or upon death has different tax treatment. When stock is inherited ( upon your death ), the cost basis is the fair market value on the day you passed. This has potential to reduces the taxes they owe.
How to gift stock
When gifting the stocks, the general process involves first selecting the stocks intended for the gift. Subsequently, the giver must contact their brokerage or financial institution to initiate the transfer. The transfer entails filling out specific forms, and the required documentation may vary based on the brokerage firm’s policies. It is advisable for the giver to confirm whether there are any fees associated with this transaction, as these can vary widely.
Moreover, gifting stocks to minors requires additional steps. Since minors cannot own stocks directly, custodial accounts, such as UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) accounts, must be established. These accounts allow an adult custodian to manage the gifted stocks until the child reaches the age of majority. Understanding these nuances in the gifting process can facilitate a smoother transition for both parties involved, particularly when catering to children.
Other Tax Implications of Gifting Stocks
When considering gifting stocks to a child, one must be aware of various tax implications that accompany such a financial decision. Understanding these ramifications is essential to ensure compliance with tax regulations and to fully grasp the long-term effects on both the giver and the recipient.
Gifting stocks may affect their Financial aid calculation – which treat up to 20% of the assets owned by a dependent student as available to pay for college. You may also want to learn more about Kiddie Tax, which “Applies if the child is < 24 and a full time student (lower ages if not), and has more than $2,700 in unearned income for 2025.
Another important aspect is the child’s financial literacy. It is vital to assess how much they know about money management and investments. Teaching children about investing early on can lay the groundwork for sound financial habits in the future. By gifting stocks, you not only provide financial assets but also impart valuable lessons about the importance of saving and investing for the long term. This foundational knowledge can empower children to make informed financial decisions as they grow older, ultimately benefiting them throughout their lives
In conclusion, gifting stocks to a child can provide significant benefits, but it is important to navigate through the associated tax implications. Understanding the annual exclusion limits, the possibility of capital gains taxes, and the differences in treatment when compared to cash gifts will enable individuals to make informed decisions. Before you take any action, pl consult Financial/Tax professional as these are money and tax related matters.
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