What is the difference between gifting stocks and transferring them upon death?

The main difference between gifting stocks and transferring them upon death is that when they are gifted, the recipient becomes the legal owner of the shares immediately. When they are transferred upon death, the recipient does not become the legal owner until after the donor's death.

Is there a limit to how much I can give as gift stocks?

There is no limit to how much you can gift in stocks, but you will have to pay taxes on any amount over $15,000.

What happens if I want to get my stocks back from the charity?

If you want your stocks back from the charity, you can always request that they be sold and then give them the money.

Is there a capital gains tax when gifting shares of stocks?

Gifting shares of stock may attract a capital gains tax. Gains from gifting stocks are generally subject to the same rules as any other capital gain. Gifting stock may be subject to capital gains tax at the giver's marginal rate and is generally payable by the giver.

How can I set up a custodial account when gifting shares of stocks?

It is possible to set up a custodial account for someone under the age of 18. This can be done through any financial institution like a bank, credit union, brokerage firm, or trust company.

Giving Shares of Stocks as a Gift

Can You Give Shares of Stock as a Gift?

Yes. Shares of stock can be gifted to individuals, charitable institutions, or other entities. Gifting stocks come in different ways and each will have its own tax implications.

Reasons for Gifting Stocks

There are many reasons why an individual may choose to give shares of stock. Some of the most common reasons include:

To celebrate a special occasion, such as a birthday, graduation, or wedding.
To make a donation to a charitable organization.
To reduce estate taxes upon death.
To simplify the administration of an estate.
To provide financial assistance to a family member or friend in need.
To build or diversify one's investment portfolio.

How Do Gifting Stocks Work?

The process of gifting stocks is fairly simple but the manner may come in different ways depending on who the recipient of the stocks is. You may give stocks that you currently own or buy stocks specifically for another person or entity.

Shares of stocks may be given to an individual or a group of people. The stocks may be gifted through a will, trust, or directly to the recipient.

If the stocks are gifted to an individual, they will become the legal and beneficial owners of the stocks.

If the stocks are gifted to a group of individuals, a trustee will be appointed to manage the stocks on behalf of all the beneficiaries.

Gifting Stocks to Minors

If you gift shares of stock to a minor, there are special rules that apply since the recipient is below the legal age of owning shares of stocks. The stock must be transferred to a custodian until the minor reaches 18 years old.

This process is called a "Custodial Agreement." In a custodial agreement, a custodial account is opened for the minor with a financial institution or brokerage firm.

When the custodian receives the stocks, they become the legal owner of the shares.

The beneficiary remains as an owner without any rights to sell or transfer privileges until he reaches 18 years old. Once the child turns 18, he is considered to be a majority and may claim his shares in full.

If you wish for your gift to remain anonymous and confidential, it can be opened in a Uniform Gift to Minors Act account (UGMA) or in a Uniform Transfers to Minors Act account (UTMA).

There are some states that do not recognize these types of accounts so it is best that you check with your state's laws first.

Gifting Stocks to Adults

Gifting stocks to another person, whether you know the recipient or not, is fairly simple and more flexible than that of gifting stocks to a minor. There are four ways this can be done:

Transfer Directly to Their Brokerage Account

You can give stocks by physically transferring the shares into an account opened in your name, the recipient's name, or a joint account.

Transfer Via Trust

You can set up a trust with the brokerage firm where you will transfer your stocks to be held in trust for another person.

The trust may require that this is done until certain conditions are met such as age or graduation from college. It is important to note that when creating a trust, there are fees associated with opening and maintaining the account.

Another drawback of this method is that once you create a trust, it begins automatically without revocable terms even if circumstances change.

Keep in mind that each state has its own rules on how trusts must be written so it is best to consult an attorney.

Set Up a Transfer on Death Agreement

Similar to a trust, you can also set up a transfer on death agreement. This is an agreement between the donor and the recipient that allows the stocks to be transferred upon the donor's death.

The benefit of this arrangement is that it is revocable so it can be changed or canceled at any time. The recipient does not have any immediate rights to the stocks and will only inherit them after the donor's death.

Give as a Gift

The simplest way to gift shares of stock is by giving them as a present.

The recipient will become the legal owner of the stocks and will be able to do whatever they want with them including selling them.

Gifting Stocks to Charitable Institutions

There are two methods to give shares of stocks to charitable institutions. These are:

Via Electronic Transfer

The stocks in this manner are transferred into the charity's account electronically.

Take note that not all charitable institutions have the capability to electronically accept shares of stocks so it is best to check with the institution first.

Donor-Advised Fund

A donor-advised fund is a type of charity that allows you to make a donation and then recommend how the money should be distributed.

The benefit of donating stocks into a donor-advised fund is that it provides immediate tax relief. The deduction is based on the current market value of the stock on the day it was given to the charity.

Tax Implications When Gifting Stocks

There are two types of taxes that can be incurred when gifting stocks: capital gains tax and gift tax.

Capital Gains Tax

This is a tax on the profits made from selling stocks. The rate of this tax depends on how long the recipient has owned the stocks.

If the stocks are gifted and the recipient has owned them for less than a year, they will be taxed at their ordinary income tax rate.

If the stocks are gifted and the recipient has owned them for more than a year, they will be taxed at a capital gains tax rate of 15%.

Gift Tax

This is a tax on the total value of all gifts given to one person in a calendar year. The tax is assessed on the donor and not the recipient. The gift tax rate depends on how much you give.

For example, if you give someone more than $15,000 in stocks, you will have to pay gift taxes on the amount over $15,000.

Tips in Gifting Stocks

When gifting stocks, there are a few things to keep in mind:

Make sure you have the recipient's correct information, including their social security number and mailing address.

If you are gifting stocks through a trust or a transfer on death agreement, make sure to have an up-to-date copy of the trust or agreement.

If you are giving stocks as a present, make sure to include a gift letter that states that the stocks are a gift and not a loan.

Lastly, it is best to consult with a financial advisor or tax accountant to make sure you are taking full advantage of the tax breaks available when gifting stocks.