Tis the season of gift giving, also known as the worst season of the year for people who hate shopping. What do you give the person who has everything? How do you come up with a gift that's meaningful and won't just sit in a cupboard or end up at Goodwill next spring?
The good news is that if you're an investor, the answer may be something you already own, so you don't even need to leave the house to gift it. What's more, this gift can benefit both you and the receiver financially. What is it, you ask?
Stock.
That's right: You can gift stocks, and the process needn't require going farther than your computer. Here's how to gift stocks and what to know before you do so.
Should I gift stocks?
Before you give stock to someone, you should make sure it's the right gift to give. There are many benefits to gifting stock, but also important tax considerations to keep in mind.
Gifting stock instead of cash can be a great way to help younger investors with their savings and investing goals, says Nicholas B. Yeomans, a certified financial planner and president of Yeomans Consulting Group. "Over the years, we have witnessed receivers of stock choose to keep it instead of sell it and spend the cash, versus a younger receiver who receives cash – many times when it is more readily available to be spent, it will be."
If you gift stock to a charity, the charity doesn't have to pay any taxes on the gain. It can then "take the cash you would have given and make a new investment re-establishing a new basis," a real "win-win," Yeomans says.
Gifting stock can also benefit you as the giver, especially if the shares have appreciated in value since you bought them.
Gifting appreciated stocks allows you to "give away the gain," says Jere Doyle, an estate planning strategist at BNY Mellon Wealth Management. The recipient assumes the stock at your cost basis and holding period. If and when she chooses to sell it, she gets to realize the full gain. This also means she realizes the full tax implications of the gain, but this may be a small price to pay, especially if the receiver is in a low tax bracket and you've held the stock for more than a year so that it qualifies for the lower long-term capital gains tax rates.
You can give up to the annual gift tax exclusion amount each year without paying taxes on the gift or filing a gift tax return. In 2023, that amount is $17,000 per person. The gift tax exclusion rises to $18,000 per person in 2024.
If you make the gift to a charitable organization, you also get to deduct its fair market value at the time of the contribution on your federal tax return. If you do this, Yeomans says it may also be a good time to consider a Roth conversion since the deduction can be used to offset some of the taxes from the conversion.
Be aware that you're not only giving away the shares when you gift stock, but also your right to any future cash flow, such as dividends, from that stock, Doyle says. Make sure you can afford to relinquish this before you make the gift.
How to gift stocks
You don't need to sell the stock before gifting it. Your adviser or brokerage firm can transfer ownership of the actual shares much like you'd transfer ownership of a car, except gifting stock is even easier if you hold digital shares.
Gifting stock can be as simple as calling your financial adviser or the firm that holds your stock currently and asking them to transfer the shares to the recipient for you. Most have an automated transfer process for moving stock "in kind" between accounts.
The recipient will, of course, need an account to receive the shares, and you'll need to know her account number and location. If she is a minor, you can open a custodial account, called an UGMA or UTMA, that lets you gift securities to a person who is underaged without giving the minor authority to sell the shares until she reaches the age of majority in her state. In the meantime, you retain control over the assets in the UGMA or UTMA, but assets put into the account cannot be withdrawn except for the minor's benefit.
If you hold physical stock certificates that you want to give, the process is a bit more complicated. You'll need to fill out the assignment on the back of the certificate. You may also need to get your signature guaranteed, which, based on my experience working at Fidelity Investments, is similar to the notarization process but involves signing the certificate at a financial institution that provides Medallion signature guarantee services. Most institutions provide this service for free.
"If you are attempting to qualify for the gift tax annual exclusion or an income tax charitable deduction for 2023, make sure the gift is done in 2023 and is not deemed made in 2024," Doyle adds.
