A Guide: How to Gift Stocks
Stocks are the gift that keeps on giving. Unlike gifts that are left in a corner and forgotten, stocks will retain their value and pay your loved one dividends for years to come. Use this guide to determine which method you should use to buy and gift stocks.
Why give traditional gifts when you can give stocks instead? Not only do they appreciate over time, but they also can be a great starting point for teaching your loved ones the value of saving and investing. With the added benefit of them potentially appreciating over time, stocks are the gift that keep on giving. While purchasing and gifting stocks isn’t as straightforward as ordering a present on amazon prime and having it delivered the next day, it is easier than you think.
What are stocks?
A stock is a share, or a fractional portion, of ownership of a corporation. When you buy a stock, you are investing in a company, thus becoming the owner of a small segment of the company and will receive a portion of the company’s profit. So when you purchase a stock as a gift, it’s like you’re giving the recipient a piece of that company.
What makes it a great gift?
Consider this: If you had the option of giving your friend or family member a pair of Nikes or a stake in Nike as a company, which one seems more valuable to you?
Rather than giving a clothing item as a present that will depreciate over time, stocks will retain their value and might even pay your friend or family dividends for the rest of their lives. At the same time, you’re teaching them a valuable lesson on building wealth in the market.
However, before we crown stocks as the pinnacle of all gifts, there are some fees that you should bear in mind.
Capital Gains Taxes
Capital gains is the profit you make when you sell an asset for more than what you paid originally, and as with most kinds of profits, they are subject to taxation. In most cases, once the recipient receives the stock, the tax responsibility will transfer over. Meaning the recipient will have to pay some of their gift back when they cash it out. The category of capital gains tax you pay is determined by the duration you held the asset before selling it and is typically classified by the length of time it was held: either short-term or long-term.
Gift Tax Rules
While large monetary gifts are subject to taxation, unless you’re intending on gifting stocks with a value of more than $15,000 on the date of the gift, you will not need to file a gift tax return. If you exceed this amount, the IRS will apply the excess amount to your lifetime gift exemption limit. Only when you reach the limit of $11.58 million will you have to pay any taxes.
How do you buy stocks as a gift?
There are several ways you can give stocks as a present: through a broker, a direct stock purchase plan, or a stock-gifting company. Here are some of your options...
Gifting stocks through a broker
Through an online brokerage, you can transfer some or all of your ownership in a particular stock to someone else. You can do this only if the recipient has an account with a brokerage, but keep in mind that it does not have to be the same as yours. However, if they are the same brokerage, it tends to make the process a bit easier.
Different brokerages may have varying guidelines on moving stocks out of your account or between accounts, so checking the FAQ page will always be your best bet.
Keep in mind before making the transfer, you will need to provide some information such as the recipient’s account number, social security number, and potentially a few other additional details. Also, it may be likely you’ll need to pay fees when making a transaction that could cost more than the share itself, making it a less practical choice.
Gifting stocks through the issuing company
To skip any intermediary process, you can consider buying the stocks directly from the company by using a direct stock purchase plan (DSPP). This plan is offered by most companies and allows individual investors to purchase stocks without any fees. Plus, if you go through the issuing company, you may even receive a discount.
It is a two-step process, and all you have to do is fill out a form with the recipient’s contact information and then mail in your check. And in the future, if your recipient wishes to buy more stocks from the same company, they just need to send in another check.
Gifting stock through a stock-gifting company
If you’re looking for the easiest method to gift stocks, using a stock market investing platform is the best option for you. These online platforms have made the process of purchasing and gifting a stock as simple and seamless as possible. For example, here are two options…
Stockpile is an online service platform that allows you to buy individual stocks as gifts in the form of a gift card, which includes both the company’s name and the dollar amount of stock purchased in the company (for a preset amount ranging from $1 to $2,000). You can start either by creating an online e-gift or buying a plastic card. Depending on what type of gift card you choose (digital or physical), your e-gift will be automatically sent to the recipient. Alternatively, you can give them your plastic card like you would any other present.
And once everything is done on your end, all there is left for the recipient to do is visit StockPile, enter the gift code, and sign up for the service. After the recipient has received the stock or fractional share, they can switch to a different stock free of charge.
One thing to take note of is that StockPile does not require a monthly fee or account minimums, but they do charge the buyer $1.99 along with 3% of the value of the gift card purchased.
Public.com is a social investing and brokerage site that allows you to gift a stock or a partial share (worth up to $50) at no cost to yourself. It’ll only take you 5 minutes, and you don’t even have to become a user to send stocks. You just have to complete these three easy steps: select a stock, write a note, and send away.
For your friend or family to redeem the stock, they’ll need to sign up for Public.com and then download the app. After the initial 60 days of redeeming the gift, the recipient can then sell their stock or withdraw the value of the stock at its current value whenever they’d like.
Stocks can be gifts that become more and more valuable as the years go by and can teach your loved ones the value of investing and growing their wealth. And if you’re someone who has advised a friend or family member to start investing previously, there’s nothing like putting your advice into practice to get the point across. Nevertheless remember, similar to any sizable gift you plan to give, do your research or consider consulting a financial advisor. It could be an opportunity to further your knowledge in smart money management and help you determine how your gift can be most useful/helpful to your loved ones.