Benefits of Giving Stocks as a Gift
The last few years have seen a surge of people investing in stocks. Rather than giving cash or material objects, stocks will make your loved ones learn all about the benefits of investments.
After all, stocks are just one of the many ways you can make your money work for you and achieve financial independence.
If you’re gifting stocks to family, it can also act as wealth you can pass to them. If they have a business and are aiming for business growth, gifting stocks will be such a valuable gesture for their success.
This blog will explore some of the benefits of giving stocks as a gift.
1. Donating stocks to charity without tax
Did you know you can give stocks to a charity?
If you sell stocks that have appreciated in value, you will have to pay capital gains tax on the profits. However, if you give the shares directly to a charity, you can claim the fair market value of the shares (the price an asset will sell in the marketplace) as a tax deduction.
This process is relatively simple: Once you decide which stocks and how many shares to donate, contact your broker, and they’ll prepare a letter of authorization for transferring the stock certificate.
The charity will then deposit them into their brokerage account and send you an acknowledgment of receipt for tax purposes.
2. You can pass down wealth
Stocks are a great gift option for those looking to get their children started early with investing.
If you’re planning on passing down wealth to your child, it’s wise to do so while they’re young. This way, they can start saving and establishing good saving habits early.
While having a credit card can be helpful in expenses, gifting them stocks teaches them the value of making their money work for them.
You can also set up a custodial account, which will help teach your child how to manage money. In addition to setting up an account, you can follow these steps:
- Pick the right stocks based on your child’s age and risk tolerance.
- Check with the company that holds the stock certificates and make sure it will allow transfers of ownership by minors.
- Coordinate with your financial advisor if you have one
3. You can provide a custodial account
Parenting is hard work. But it’s also a lot of fun, especially when you can pass along some of the knowledge you’ve gained from your own experiences to the next generation.
It would be great if every kid could learn about investing early on and go through life to understand how money works.
Custodial accounts are trust accounts set up for young adults (ages 18 or 21).
With one account that belongs entirely to your child and another owned by your financial advisor under your name as “trustee,” they have secure finances while also having control of it after a certain age.
All things considered, this gives kids more freedom than bank savings accounts ever did and helps bridge the gap between investing concepts learned in school and real-world practice.
In addition, since these trusts are held within a custodial account inside an investment company, federal income tax-free contributions should result in significant returns over time as well as potentially beating market indexes.
4. You can encourage their interest in investing
If you’re interested in giving stocks as a gift on your next payday, start with the recipient.
Do they have an interest in stocks? Are they knowledgeable about finance?
Stocks can be a great gift, but it’s vital to make sure your friend or loved one will get something out of them. Otherwise, it’s just a waste of money and time.
Once you’ve considered the recipient and decided that stocks would be a good gift for them, keep these steps in mind:
- Open up an account on their behalf before purchasing the stock. You’ll need the person’s name and tax information to do this.
- Decide how much you want to spend on the gift. A decent amount of money might be $500 or more. Any less could result in small returns that aren’t worth much for anyone involved.
Treat different people differently; think about what kind of stock to buy based on who you’re gifting it to.
If it’s your niece or nephew, consider gifting something engaging or fun—not necessarily a practical investment opportunity. But if it’s your parents or another family member who is ready to invest, give something that they’re passionate about and can genuinely benefit from financially down the road.
Stocks are a great gift for children or grandchildren. They teach about the importance of saving, investing, and creating wealth and often have tax advantages.
The key is to make sure your heirs know how to use the gifted stocks properly.
If you or your family need help in getting your finances and investments in order, you may seek the help of an accountant or bookkeeper.