There are several advantages to making a gift of stock to your children, including the following:1. Gifting appreciated stock allows you to avoid capital gains taxes.
2. Gifting stock allows you to take advantage of the current annual gift tax exemption amount, also known as the 2018 Gifting Limits. In 2018, an individual can gift up to 15,000 U.S. Dollars to any person, and a married couple can gift up to 30,000 U.S. Dollars to any person, without paying federal gift tax. This is known as the annual exclusion for gifts. In 2019, an individual can gift up to 15,000 U.S. Dollars to any person, and a married couple can gift up to 30,000 U.S. Dollars to any person, without paying federal gift tax. If you are planning to make gifts in 2019, refer to the
2019 Gifting Limits.Federal estate and gift tax laws may become less favorable in the future, so making a gift of stock in the current tax environment is a good way to avail yourself of current tax laws.
3. If done properly, gifting stock to children is an effective way to reduce the size of your estate for estate tax purposes. Estate tax rates may increase in the future and exemption amounts may be reduced. Gifting stock is a way to pass family assets to your heirs and pay less to the federal government.4. Making a gift of stock to a child is an excellent way to get him or her interested in saving and investing. It gives your child a personal interest in the stock market. Your child can track the fluctuations in stock price and begin to learn about dividends, capital gains, stock splits, and the role of shareholders. Teaching children how to be responsible with money is challenging in today's society. If your children will eventually receive a large portion of your estate, gifting stock is a good way to prepare them for the responsibility of managing their inheritance. For more on making gifts and transfers to children, see
Steps Involved in Gifting Stock to Children
After talking with your tax adviser, if you decide you want to make an outright gift of stock to your children, you need to transfer title to make your child the legal owner of the stock. For a list of steps to transfer title to securities to another person, see gifts and gifting.
Disadvantages of Gifting Stock to Children
Before signing the forms required to gift stock to a child, be aware there are some potential disadvantages to this estate planning method, including:1. Once you transfer stock to your child, you cannot get it back. If your financial situation changes, you will not be able to take the stock back from your child.2. When your child sells the stock, he or she may use the proceeds for any purpose. You may not approve of how your gift is spent. When you gift stock directly to your child, he or she becomes the legal owner. If you make an outright gift of stock, there are no restrictions on how your child may use the proceeds from selling the stock.If you want to restrict or control how gifted assets are used, consult a lawyer about establishing a trust. See Estate Planning Trusts. For gifts of stock to minor children, a custodial account may be used so the custodian can manage the stock until the minor reaches the legal age for distribution. See Gifts to Minors UTMAs.3. Depending on the amount of income earned on the stocks and your child's age, your child may owe income tax as a result of owning the gifted stock. This can make filing tax returns more burdensome, especially if you have several minor children that owe tax. Before gifting stock, ask a
Tax Professional what taxes may be owed and how to handle filing returns for tax owed by minor children.4. Making a gift of stock to children is not tax deductible. If you are interested in reducing your income taxes, you may wish to explore charitable giving options.5. The child's ownership of gifted assets may affect eligibility to receive financial aid for college.
Buying Stock for Children
If you do not currently own stock you wish to gift, but want to purchase stock for the benefit of a minor child, one option is to open a custodial account. See Gifts to Minors UTMAs.If you want to invest funds to help a child save for college, you can open a 529 college savings plan account. These types of accounts offer a variety of investment options from conservative to aggressive. See College Funds.This article was updated on March 29, 2019.
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