Giving stock as a gift can serve multiple functions. For one, it can help teach the recipient about how financial markets work, and the value of owning stock over time. For another, it can be a great way to give a gift that becomes more valuable over time. Stock gifts can also play a role in estate planning. But how exactly do you give stock as a gift, and what are the legal and tax ramifications? Here’s a quick look at what you need to know about the whole process of gifting stock.
What’s the Actual Process To Gift Stocks?
The easiest and most common way to gift stocks these days is a simple electronic transfer. Most stocks are held by brokers as electronic shares, so you’ll simply have to contact your broker and initiate an electronic transfer. You’ll need to provide specific information about the recipient, including their name and address, account number and Social Security number. You’ll also have to choose which stock you want to gift, and how many shares.
If you hold your shares in actual certificate form, it’s still a simple process, it just involves slightly different steps. If you want to make your gift directly, you’ll simply sign over your ownership to the recipient on the back of the certificate and hand it to them. You can also do this through your broker.
An additional option for gifting shares is to simply buy new shares in the recipient’s account.
What Are the Tax Ramifications for the Giver?
In most cases, there aren’t any gift taxes due for the donor. If the value of the gift is below the so-called “annual exclusion” amount, which is currently $15,000 for an individual, the stock gift doesn’t even need to be reported.
For amounts above that, however, a donor must file a gift tax return, Form 709. Even then, there’s not likely any gift tax due. The amount given will be applied against your lifetime exclusion amount, which is $11.7 million for an individual, or $23.4 million for a couple. Only gifts that broach this level will face gift tax for the donor.
What Are the Tax Ramifications for the Recipient?
A recipient doesn’t pay any immediate tax on gifts, including stock shares. However, they will be liable for any capital gains earned by owning the stock. An important thing to note about gifted shares is that the recipient inherits the original cost basis of the donor.
For example, if someone donates 100 shares of IBM that were purchased at $50 but now trade at $100, the recipient will inherit the original $50 per share cost basis. If they were to turn around and sell the shares immediately at $100, they’d owe tax on a $50 per-share capital gain.
How Does Gifting Stock Work as Part of an Estate Plan?
Many wealthy shareholders gift stock as a way to reduce their taxable estate. By transferring shares out of their estates while still alive, the amount of estate tax they may have to pay at death can be reduced. Gifting stock also transfers any future appreciation out of the estate. However, this type of planning is typically reserved for large estates. If you’re curious about how you might be able to use gifting stock as an estate planning strategy, consult with your tax or financial advisor.
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