How to Buy Stocks as a Gift for Adults and Minors

Gifting stocks offers a unique and enduring present, providing more than just monetary value. This approach allows recipients to participate in company growth and develop an understanding of financial markets. Stock gifting provides long-term benefits and educational potential, serving as an alternative to traditional presents.

Understanding Stock Gifting Methods

Before initiating a stock gift, understanding the available methods and required information is essential. Each option has specific requirements for the giver and recipient. Gathering these details beforehand streamlines the process, ensuring a smooth transfer.

Direct stock transfers involve moving existing shares from the giver’s brokerage account to the recipient’s. For this method, the giver needs the recipient’s full legal name, current address, and Social Security Number. If the recipient already has a brokerage account, their account number and the brokerage firm’s name are also necessary to facilitate the transfer.

Gifting funds for a stock purchase or opening a new brokerage account in the recipient’s name is another method. This approach requires the recipient’s personal details, such as their full legal name, date of birth, Social Security Number, and current address. The giver provides the capital, and the recipient then uses these funds to acquire chosen investments.

Stock gift certificates or cards offer a simplified way to gift a monetary value redeemable for stock. These are purchased through third-party services. To purchase these, the giver provides payment information, and the recipient redeems the card by providing personal identification details to the issuing platform to establish an account and select their desired shares.

Direct Stock Purchase Plans (DSPPs) allow individuals to buy stock directly from a company. While less common for direct gifting, some companies may permit shares purchased through their DSPP to be transferred. This method requires the recipient’s personal information to register them as a shareholder with the company’s transfer agent.

Gifting Stocks to Adults

Executing a stock gift to an adult involves specific procedural steps once information is gathered and a gifting method chosen. The process depends on whether existing shares are transferred or new investments are made. Adhering to these steps ensures successful delivery of the gift.

Transferring existing shares from a giver’s brokerage account to an adult recipient’s existing account uses an Automated Customer Account Transfer Service (ACATS). The receiving brokerage initiates this transfer, requiring a Letter of Authorization or similar transfer form signed by the giver. ACATS transfers typically complete within three to six business days.

If the adult recipient does not have a brokerage account, a new one must be opened in their name. The giver can assist by providing funds or guiding the recipient through the application process. This involves submitting the recipient’s personal identification, such as a government-issued ID and Social Security Number, and completing the brokerage’s account opening forms. Once the account is established and funded, the recipient can purchase desired stocks.

For stock gift certificates or cards, the giver purchases the certificate from a specialized provider and presents it to the recipient. The recipient redeems the certificate online or through the specified platform by providing personal details to establish an investment account. Upon redemption, the monetary value is converted into shares or fractional shares of stock, selected by the recipient.

Gifting Stocks to Minors

Gifting stocks to individuals under the age of majority requires specific legal structures, with custodial accounts as the primary vehicle. These accounts ensure proper management of assets until the minor assumes control. The establishment and funding of these accounts follow distinct procedural guidelines.

Custodial accounts, such as Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts, are the standard for gifting stocks to minors. An adult custodian, often the giver, manages the account on behalf of the minor until they reach the age of majority, which is typically 18 or 21, depending on state law. The custodian maintains legal control and makes investment decisions.

Opening a UGMA/UTMA account involves completing an application with a brokerage firm, providing the minor’s Social Security Number and date of birth, along with the custodian’s personal details. Funds or shares can be transferred into this account. The custodian can transfer existing shares into the newly opened custodial account or purchase new shares directly within it.

Assets in a custodial account are irrevocably transferred to the minor, meaning the giver cannot reclaim them. The minor does not gain direct control over the assets until they reach the age of majority, at which point the account transfers directly into their name. This structure ensures the assets are managed for the minor’s benefit.

Tax Considerations for Stock Gifts

Understanding the tax implications for both the giver and the recipient is important when gifting stocks. Specific tax rules apply regarding annual exclusion limits, cost basis, and income generated by the gifted assets. Familiarity with these regulations helps in informed decision-making.

For the giver, stock gifts are subject to federal gift tax rules. In 2024, an individual can gift up to $18,000 per recipient without incurring gift tax or needing to file IRS Form 709. This annual exclusion amount rises to $19,000 per recipient in 2025. Married couples can combine their exclusions, effectively gifting $36,000 in 2024 or $38,000 in 2025 to a single recipient without tax implications.

Gifts exceeding the annual exclusion amount require the giver to file Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Filing this form does not typically result in an immediate tax payment due to a substantial lifetime gift tax exclusion. For 2024, this lifetime exclusion is $13.61 million, increasing to $13.99 million in 2025.

For the recipient, the “carryover basis” rule applies to gifted stock. This means the recipient’s cost basis for the stock is the same as the giver’s original purchase price. If the recipient sells the stock for a gain, their capital gains tax will be calculated based on the difference between the sale price and the giver’s original cost basis.

When stocks are gifted to minors, unearned income generated by these assets, such as dividends or capital gains, may be subject to the “Kiddie Tax.” For 2024, if a child’s unearned income exceeds $2,600, a portion of that income may be taxed at the parent’s marginal tax rate. The first $1,300 of unearned income is tax-free, the next $1,300 is taxed at the child’s rate, and amounts above $2,600 are taxed at the parent’s rate. Consulting a qualified tax professional is advisable for personalized guidance.