How to Buy Stock for Someone Else: The Process

Buying stock for another individual serves various financial purposes, from establishing a long-term investment for a child to facilitating estate planning. It represents a financial gift that can grow in value, supporting someone’s financial future. Understanding the proper procedures and options ensures the transaction aligns with both the giver’s intentions and regulatory requirements. This process involves considering account types, documentation, the transaction, and tax implications.

Choosing the Right Account Type

Selecting an appropriate account type is a foundational step when purchasing stock for someone else, as it dictates ownership, control, and accessibility of the assets. Each structure offers distinct legal and financial implications tailored to different gifting scenarios and beneficiary ages. Understanding these differences helps ensure the investment aligns with your long-term objectives for the recipient.

For gifting to minors, a Custodial Account, specifically a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account, is commonly utilized. These accounts are established in the minor’s name but managed by an adult custodian until the minor reaches the age of majority. The assets within these accounts are considered an irrevocable gift to the minor, meaning the custodian cannot reclaim them. Upon reaching the specified age, which varies by state (typically 18 or 21), the assets automatically transfer to the beneficiary, who gains full control.

Joint Accounts provide shared ownership and are generally suitable for adults who wish to hold assets together. Two common forms are Joint Tenants with Right of Survivorship (JTWROS) and Tenants in Common (TIC). A JTWROS account ensures that if one account holder passes away, their share of the assets automatically transfers to the surviving joint tenant, bypassing probate.

Conversely, a Tenants in Common (TIC) account allows each co-owner to hold a distinct, proportionate share of the assets. This share does not automatically transfer to the surviving owners upon death; instead, it passes to the deceased owner’s estate, to be distributed according to their will or state intestacy laws. This arrangement provides flexibility for estate planning but requires explicit instructions for asset distribution.

For more complex situations or larger asset transfers, establishing a Trust can be a suitable option. A trust involves a grantor, who places assets into the trust, a trustee, who manages the assets according to the trust’s terms, and a beneficiary, who benefits from the assets. Trusts offer flexibility in terms of control over asset distribution, timing, and conditions for release, but they involve higher setup costs and administrative complexities.

Required Information and Documentation

Establishing an account or transferring stock for another individual necessitates providing specific information and documentation for all parties involved. This rigorous process ensures compliance with financial regulations and verifies the identities of the giver, recipient, and any appointed fiduciaries. Gathering all required details beforehand streamlines the account opening or transfer process considerably.

The giver, also known as the purchaser or donor, must typically provide their full legal name, current residential address, and date of birth. A Social Security Number (SSN) or Taxpayer Identification Number (TIN) is also required for tax reporting purposes. Valid government-issued identification, such as a driver’s license or passport, will be needed to verify identity.

Similarly, the recipient or beneficiary will need to provide their full legal name, address, and date of birth. If the recipient is a minor, a birth certificate may be required to confirm their age. A Social Security Number (SSN) or Taxpayer Identification Number (TIN) is essential for the recipient, as it is used for any tax implications related to the gifted stock. The relationship between the giver and the recipient is also typically requested.

Specific account types may require additional documentation. For custodial accounts, the minor’s SSN is mandatory, and the custodian will need to provide their personal information as well. If establishing a trust, a copy of the legally executed trust document is required, detailing the trust’s terms, the trustee’s powers, and the beneficiaries. The trustee will also need to provide their personal identification and SSN or TIN.

Account opening or transfer forms are typically available on brokerage websites, through bank branches, or from a transfer agent for physically held stock certificates. When completing these forms, it is important to accurately fill in all informational fields using the exact details gathered from all parties. Any discrepancies or missing information can lead to significant delays in processing the transaction.

Completing the Stock Transaction

After the necessary accounts are established and all required documentation is submitted, the next step involves executing the actual stock transaction, whether purchasing new shares or transferring existing ones. The specific method depends on whether you are buying new stock or moving shares already held.

For new stock purchases, the account must first be funded. This can typically be done by linking a bank account for electronic transfers, such as ACH (Automated Clearing House) transfers, or by wire transfers, or mailing a physical check. Once funds are settled, you can place a buy order for specific stocks or exchange-traded funds (ETFs) through the brokerage platform. Some companies also offer direct stock purchase plans (DSPPs) that allow direct investment without a broker.

Transferring existing stock involves different procedures based on how the shares are currently held. If the shares are held electronically in a brokerage account, a Depository Trust Company (DTC) transfer is often used to move the shares between brokerage firms. This electronic process typically completes within 10 business days. For shares held in physical certificate form or directly registered with a transfer agent, a transfer agent will facilitate the process, usually involving submitting completed transfer forms along with the physical certificates.

Certain types of stock transfers, particularly those involving physical certificates or significant value, may require a Medallion Signature Guarantee. This is a special stamp provided by eligible financial institutions, such as banks, credit unions, or broker-dealers, that verifies the authenticity of a signature and confirms the signer has the legal authority to endorse the transfer. It is a measure to prevent fraudulent transactions and differs from a notary’s seal, as the issuing institution assumes liability for the signature’s validity. To obtain one, you typically need to visit an institution where you have an established account, present valid government-issued photo identification, and provide the completed transaction documents, which should not be signed prior to the appointment.

Once all documentation, whether for funding or transfer, is completed, it must be submitted to the relevant financial institution. Many brokerages offer online portals for secure electronic submission, which is generally the quickest method. Alternatively, forms can be mailed via postal service or, in some cases, delivered in person. After submission, you should receive a confirmation of receipt, and processing times can vary, with electronic transfers generally being faster than those requiring physical documents or a Medallion Signature Guarantee.

Tax and Reporting After the Transfer

After stock has been acquired for another person, understanding the subsequent tax and reporting obligations for both the giver and the recipient becomes important. These responsibilities are primarily governed by federal gift tax rules and capital gains provisions, which can influence how the gifted assets are treated for tax purposes. Careful attention to these details can help avoid unexpected tax liabilities.

The act of gifting stock may trigger gift tax considerations for the giver. The Internal Revenue Service (IRS) provides an annual gift tax exclusion, which allows an individual to give a certain amount to any number of people each year without incurring gift tax or affecting their lifetime gift tax exemption. For 2025, this annual exclusion amount is $19,000 per recipient. If a gift of stock exceeds this annual exclusion amount, the giver is generally required to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Filing Form 709 does not necessarily mean gift tax is owed immediately; rather, the excess amount reduces the giver’s lifetime gift tax exemption.

A crucial aspect for the recipient of gifted stock is determining its cost basis, which is used to calculate capital gains or losses when the stock is eventually sold. The general rule is that the recipient’s cost basis is the same as the donor’s original cost basis. However, if the fair market value (FMV) of the stock on the date of the gift was less than the donor’s basis, a special rule applies. In such a scenario, if the recipient sells the stock for a gain, they use the donor’s original basis. If they sell it for a loss, they use the FMV at the time of the gift as their basis. If the selling price falls between the donor’s basis and the FMV at the time of the gift, no gain or loss is recognized.

The recipient will also have tax obligations related to the gifted stock’s performance. Any dividends paid by the stock will be taxable income to the recipient in the year they are received. When the recipient sells the stock, any capital gains (profit from the sale) will be subject to capital gains tax. The tax rate on these gains depends on how long the stock was held (short-term for one year or less, long-term for more than one year) and the recipient’s income bracket. Brokerage firms typically issue Form 1099-DIV for dividends and Form 1099-B for proceeds from stock sales, which are used by the recipient for tax reporting.

For custodial accounts holding stock for minors, additional reporting considerations may arise due to “kiddie tax” rules. These rules apply to unearned income, such as dividends and capital gains, received by children below a certain age. For 2025, the first $1,300 of a child’s unearned income is tax-free, and the next $1,300 is taxed at the child’s own tax rate. Any unearned income exceeding $2,600 is generally taxed at the parents’ marginal tax rate. The custodian is responsible for managing the account and ensuring any necessary tax filings, such as IRS Form 8615, are completed if the child’s unearned income surpasses these thresholds.