Can Stocks Be Gifted? In today’s ever-evolving financial landscape, gifting stocks has become a popular and unique way to celebrate special occasions and introduce loved ones to the world of investing. Not only does it offer practical benefits for both the giver and the recipient, but it also serves as an educational tool to teach financial responsibility and long-term wealth accumulation. In this comprehensive guide, we will explore the various methods and considerations involved in gifting stocks, answering the question: Can stocks be gifted?
Understanding the Basics of Gifting Stocks
Gifting shares of stock has gained traction as an alternative to traditional gifts like gift cards, clothing, or toys. It offers a chance to make a lasting impact by providing individuals with an opportunity to participate in the stock market. Whether you are gifting to a family member, friend, or charity, the process of gifting stocks can be simple and rewarding.
The Benefits of Gifting Stocks
Before delving into the logistics of gifting stocks, it’s essential to understand the benefits it offers to both the giver and the recipient. From a giver’s perspective, gifting stocks can be a tax-efficient way to transfer wealth and potentially qualify for tax deductions when donating stocks to charities. On the other hand, recipients can enjoy the potential appreciation of the gifted stocks, gaining exposure to the stock market and the opportunity to learn about long-term investments.
Can You Buy Stocks as a Gift?
The process of gifting stocks begins with understanding the options available to you as a giver. One of the simplest ways to gift stocks is through virtual transfers. This method involves transferring stocks from your brokerage account to the recipient’s brokerage account electronically. By filling out the necessary forms through your broker, you can initiate the transfer seamlessly. Alternatively, you can consider giving through an app, such as Cash App, which allows you to send stocks and cryptocurrencies to other users, even if you don’t own these assets yourself.
Gifting Stock to a Child
Gifting stocks to children can be an excellent way to introduce them to the concept of investing and financial responsibility. However, due to legal restrictions, children cannot own stocks directly in most states. To overcome this hurdle, you can open a custodial account on behalf of the child and purchase stocks or transfer existing stocks into the account. The ownership of the account will transfer to the child when they reach the “age of maturity,” typically between 18 and 21, depending on the state. It’s important to note that if you prefer to retain control over the assets beyond the age of maturity, setting up a trust might be a more suitable option.
Tax Considerations When Gifting Stocks
As with any financial transaction, it’s crucial to consider the tax implications of gifting stocks. Both the giver and the recipient may be subject to certain tax obligations depending on the circumstances.
Capital Gains Taxes for the Giver
When considering whether to sell the stock before gifting or transfer the shares directly, it’s essential to evaluate the potential capital gains taxes for the giver. If the stock has appreciated in value, selling the stock and giving the cash to the recipient would result in the realization of a capital gain, which may be subject to capital gains taxes. The tax rate will depend on the holding period of the stock, with short-term holdings taxed at a higher rate than long-term holdings. In some cases, it may be more advantageous to gift the stock directly to the recipient to avoid triggering capital gains taxes for the giver.
Capital Gains Taxes for the Recipient
When receiving gifted stocks, the recipient assumes the cost basis and the holding period of the stocks. If the recipient decides to sell the stocks in the future, they will be responsible for reporting any capital gains on their tax return. For example, if you gift your daughter $10,000 worth of stock that you purchased ten years ago for $2,000, she will owe long-term capital gains taxes on the profit exceeding $2,000 when she sells the stock. It’s important for recipients to consult with a tax professional to understand their specific tax obligations.
Stock Gifts and Gift Taxes
Gift taxes may come into play when gifting stocks, but they generally only apply to the giver. The current annual gift tax exclusion allows individuals to gift up to $16,000 in 2022 or $17,000 in 2023 to each recipient without incurring gift taxes. As long as the total value of the gifted stocks to a single recipient does not exceed this threshold, gift taxes can be avoided. However, it’s important to note that recipients will need to report the gifted stocks on their tax returns when they eventually sell them.
How to Gift Stocks: Step-by-Step Process
Now that we have covered the basics and tax considerations, let’s dive into the step-by-step process of gifting stocks. The specific method you choose will depend on your preferences and the options available to you.
Also Read :- Stocks That Should Be In Every Portfolio
Step 1: Determine the Recipient and Stock
The first step in gifting stocks is to identify the recipient and select the stock you wish to gift. Consider the recipient’s interests, goals, and preferences when choosing the stock. Opt for well-established companies with a track record of solid performance, as they offer stability and potential long-term growth. For example, stocks like Disney, Apple, Starbucks, Coca-Cola, Nike, and Manchester United are popular choices for gifting.
Step 2: Choose the Gifting Method
Once you have determined the recipient and the stock, you need to choose the gifting method that suits your needs. As mentioned earlier, virtual transfers are one of the most straightforward ways to gift stocks. If the recipient has a brokerage account, you can initiate an electronic transfer by filling out the necessary forms provided by your broker. Another option is to consider gifting through an app. Apps like Cash App allow you to send stocks and cryptocurrencies to other users, even if you don’t own these assets yourself. Additionally, you can explore the option of buying a gift card for stocks, which can be appealing if neither you nor the recipient has a brokerage account. Platforms like Stockpile offer gift cards for specific stocks, index funds, or cryptocurrencies, allowing the recipient to choose their own investments.
Step 3: Complete the Gift Transfer
Once you have chosen the gifting method, you can proceed with completing the gift transfer. If you opt for a virtual transfer, follow the instructions provided by your broker to initiate the transfer. Make sure you have the recipient’s personal and account information on hand to ensure a smooth transfer process. If you are using an app, enter the required details and select the specific stock or cryptocurrency you wish to gift. For gift cards, purchase the desired amount and select the stock or investment option to be associated with the gift card.
Step 4: Consider Additional Costs and Fees
It’s important to be aware of any additional costs or fees associated with gifting stocks. Some brokerage firms may charge a small fee for transferring stocks, especially if you are transferring to a different financial institution. Additionally, if you choose to purchase a physical stock certificate, there may be costs involved in framing and shipping the certificate. Take these factors into account when planning your gift.
Step 5: Educate the Recipient
Gifting stocks not only provides a financial asset but also offers an opportunity for education and long-term financial growth. Take the time to educate the recipient about the stock market, investment principles, and the benefits of long-term investing. Encourage them to monitor their investments, stay informed about market trends, and consider seeking guidance from financial advisors or professionals. By arming them with knowledge, you empower them to make informed financial decisions in the future.
Alternatives to Gifting Stocks
While gifting stocks can be an exciting and unique option, there are alternative assets that can also be gifted. Consider these options based on your recipient’s preferences and goals.
Exchange-Traded Funds (ETFs) and Mutual Funds
ETFs and mutual funds offer diversification and can be gifted in the same way as individual stocks. These investment vehicles provide exposure to a basket of stocks or a specific market index, making them suitable for recipients who prefer a more diversified investment approach.
Savings Bonds
Savings bonds, although not as popular as they once were, can still be a meaningful gift. With higher interest rates in recent years, savings bonds can offer a safe and conservative investment option. They are particularly suitable for recipients who prioritize capital preservation over potential market gains.
Cryptocurrencies
Cryptocurrencies have gained significant attention in recent years, and gifting them can be an intriguing option for tech-savvy individuals. However, it’s important to note that gifting cryptocurrencies can be complex, and the recipient’s willingness and ability to manage these digital assets should be considered. Platforms like Robinhood and Coinbase offer options for gifting cryptocurrencies.
Conclusion
Gifting stocks can be a thoughtful and impactful way to celebrate special occasions and introduce loved ones to the world of investing. By understanding the basics, considering tax implications, and following a step-by-step process, you can successfully gift stocks to family members, friends, or even charities. Remember to choose stocks that align with the recipient’s interests, educate them about investing, and consider alternative assets if stocks are not the ideal choice. With careful planning and thoughtful consideration, you can create a gift that has the potential to provide long-term financial benefits and foster a lasting interest in the world of investing.
