There are several advantages to making a gift of stock to your children, including the following:1. Gifting appreciated stock may allow you to avoid federal capital gains taxes.2. Gifting stock allows you to take advantage of the current annual gift tax exemption amount or 2020 Gifting Limits in the U.S. In 2020, an individual can gift up to 15,000 U.S. Dollars to any person or donee without paying federal gift tax. In 2020, a married couple can gift up to 30,000 U.S. Dollars to any person or donee, using gift splitting, without paying federal gift tax. This is known as the annual exclusion for gifts.
If you are preparing tax returns for tax year 2019, you may need to know the 2019 gifting limits. In 2019, the annual exclusion for gifts permitted an individual to gift up to 15,000 U.S. Dollars to any person or donee
without paying federal gift tax. In 2019, the annual exclusion for gifts allowed a married couple to gift up to 30,000 U.S. Dollars to any person or donee, using gift splitting, without paying federal gift tax. For more details, 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. Transfer of stock ownership may require a
Stock Powers form.For a list of steps to transfer title to securities to another person, see gifts and gifting.This article provides an educational overview of the advantages and disadvantages of making a gift of stock to children in the U.S. It is not tax, financial or legal advice. Always consult a tax professional and an attorney when contemplating any securities transaction, property transfer or any other matters.
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 your tax preparer 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.
Before Making a Gift of Stock
Any gift, transfer or sale of securities can have significant tax implications for the donor and the donee. Always consult a CPA or accountant before completing any steps toward changing the registration, title or ownership of any security. Because you may be unaware of how the new holder or owner may be impacted, you may want to consult the intended recipient or donee about your plans before moving forward. You may also need to Find a Tax Professional.
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. Your financial advisor or banker can help set up this type of account.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.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.Updated on January 10, 2020.
INFORMATION ON THIS SITE, INCLUDING ARTICLES, ESTATE PLANNING FORMS, AND THE ESTATE PLANNING BLOG, DOES NOT CONSTITUTE LEGAL, FINANCIAL OR TAX ADVICE. Pennyborn.com is not a law firm and is not a substitute for a lawyer. Your use of this site does not create an attorney-client relationship. Information on this site is for educational purposes only and may not be accurate, complete or up to date.
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