01 Sep How should I gift these shares of stock to my grandchildren?
Q. I would like to gift shares of stock as birthday presents instead of giving out gift cards to my grandchildren, who are 3, 5 and 15, and my nieces, who are 15 and 19. Can I open accounts in their names or do I need to be a custodian?
A. That’s a great gift for your younger family members.
When you open up an account for a minor, there must be an adult custodian to help watch over the account and act in their best interests.
That can be you or any other adult that you trust to make the right decisions for them, said Michael Cocco, a certified financial planner with Beacon Wealth Partners in Nutley.
“A custodial account will be registered under their Social Security number so the stock would be theirs, and they would be responsible for the taxes on any dividends, interest, or capital gains,” Cocco said. “The 19-year-old can have an account on her own as she is over the age of 18, but then she will have total control over that account and can make transactions and withdrawals as she pleases.”
If you gift stock to them from one of your personal accounts, the cost basis for tax purposes will transfer over to them, Cocco said.
So if you paid $10 per share for ABC stock, and it is now worth $20 per share, they will have a potential unrealized gain. They will not have to pay taxes on it at the time of the gift, but when they sell the stock, they will have to realize and pay taxes on the gains carried over from your original purchase price per share, Cocco said.
If you open an account with cash and buy stock, they will have a cost basis at the time you pay for the stock, he said.
“In 2020, any individual can gift up to $15,000 in cash and/or stock to another person without having to report it as a gift,” Cocco said. “If you gift more than $15,000 in stock or cash, you will have to work with your accountant to file a 709 gift tax form, where the gift will still not be taxable, but you will have to use part of your lifetime giving amount — which is currently $11.58 million — to make this gift and use part of your lifetime giving maximum.”
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This story was originally published on Sept. 1, 2020.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.