How to Gift Stocks: Transfer Process and Tax Rules

Gifting stocks can be a thoughtful way to transfer wealth, support family, or contribute to charitable causes. This guide provides clarity on the essential aspects of gifting stocks, from understanding the underlying financial implications to completing the transfer and meeting reporting requirements.

Understanding Key Implications Before Gifting

Before gifting stocks, understanding financial and tax implications is important. A primary consideration is the annual gift tax exclusion, allowing individuals to give a certain amount to any number of recipients each year without incurring gift tax or requiring a gift tax return. For 2025, this amount is $19,000 per recipient; married couples can combine their exclusions to gift $38,000 per recipient. Gifts exceeding this annual exclusion typically reduce an individual’s lifetime gift tax exemption.

The lifetime gift tax exemption is a cumulative amount an individual can give away during their life or at death without incurring federal gift or estate taxes. For 2025, this exemption stands at $13.99 million per individual, meaning a married couple can shield up to $27.98 million from these taxes. If a gift exceeds the annual exclusion, the excess amount subtracts from this lifetime exemption. No gift tax is due until the lifetime exemption is exhausted. This high exemption amount is currently scheduled to revert to a lower figure after 2025 unless Congress acts.

The recipient’s cost basis for gifted stock affects their future capital gains tax liabilities. The donee’s basis is generally the donor’s original cost basis, or the stock’s fair market value (FMV) at the time of the gift if the FMV is lower and the stock is later sold at a loss. This contrasts with inherited stock, where the recipient receives a “stepped-up” basis equal to the stock’s FMV on the date of the original owner’s death. This difference is important for future tax planning.

Gifting appreciated stock (stock that has increased in value since purchase) can be advantageous because the recipient receives the donor’s original, lower cost basis. This allows appreciation to transfer to the donee, who may be in a lower tax bracket or can strategically manage the sale. Conversely, gifting depreciated stock is not advisable, as the donor cannot claim the capital loss. In such cases, it is often more beneficial for the donor to sell the stock, realize the loss, and then gift the cash proceeds.

Stocks can be gifted into various account types depending on the recipient and donor’s objectives. For adult recipients, a standard taxable brokerage account is common. When gifting to minors, Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts are used. These accounts provide a custodial structure for the minor’s benefit and grant the minor control of the assets upon reaching the age of majority, which varies by state.

Choosing Your Stock Gifting Method

The appropriate method for gifting stocks depends on how shares are held and the donor’s intentions. A common approach is a direct transfer between brokerage accounts. This method involves the donor’s and recipient’s brokerage firms coordinating electronic share transfers. The donor’s brokerage usually requires a Transfer of Assets form and may ask for a Gift Letter to specify the transfer’s purpose and recipient’s information.

For stocks held as physical certificates, the process involves endorsing the certificate and obtaining a signature guarantee. The endorsement on the back of the certificate transfers ownership. A signature guarantee, often from a bank or brokerage firm, protects against fraudulent transfers. After endorsement and guarantee, the certificate must be mailed to the recipient’s brokerage firm for deposit into their account. This method requires careful handling due to the physical nature of the asset.

Gifting stocks through a trust can provide greater control over assets and facilitate estate planning goals. A donor might transfer stocks into a revocable trust, maintaining the ability to modify or revoke the trust during their lifetime, or an irrevocable trust, which permanently removes assets from their estate. Trusts can manage assets for beneficiaries, provide for future distributions, or achieve tax efficiencies. However, their setup and administration involve legal complexities beyond a simple direct transfer.

Each method requires specific information from both the donor and donee before the transfer can proceed. For direct brokerage transfers, the donor will need the recipient’s full legal name, account number, and the receiving brokerage’s name and DTC (Depository Trust Company) number. When physical certificates are involved, the donor must ensure the certificate is correctly filled out and the recipient’s brokerage account is ready to receive the shares. For trust transfers, the trust document specifies the beneficiaries and terms, and the brokerage will require a copy of the trust agreement.

Completing the Stock Transfer Process

After deciding on a gifting method, executing the stock transfer is the next step. If transferring shares between brokerage accounts, the donor will contact their brokerage firm to initiate the process. Brokerage firms provide specific transfer forms, available online or by request. These forms require precise details about the stock, such as the ticker symbol and the number of shares, as well as the recipient’s account information.

Accurately completing all fields on these forms is important to avoid delays. This includes the donor’s account details, the recipient’s full legal name, their brokerage account number, and the receiving brokerage’s name and DTC number. Any discrepancies or missing information can cause the transfer to be rejected or significantly prolonged.

Many transfer forms require the donor’s signature; some necessitate a signature guarantee from a financial institution. A signature guarantee confirms the authenticity of the signature and the signer’s legal authority to transfer the securities. While notarization is less common for standard stock transfers, it may be required in specific circumstances or for certain types of accounts. These measures protect both the donor and the receiving institution from fraudulent activity.

Once the forms are completed and any necessary guarantees or notarizations are obtained, they must be submitted to the donor’s brokerage firm. Submission can often be done electronically through a secure online portal, by mail, or in person at a branch office. After submission, donors should anticipate a processing time, ranging from a few business days for electronic transfers to several weeks for physical certificate transfers. Both the donor and the recipient should receive confirmation from their respective brokerage firms once the transfer is complete.

Meeting Tax Reporting Requirements

Donors who gift stocks exceeding the annual exclusion amount must report these gifts to the Internal Revenue Service (IRS). The primary mechanism for this reporting is IRS Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” This form informs the IRS of a taxable gift, reducing the donor’s lifetime gift tax exemption.

A donor must file Form 709 if they make a gift to an individual exceeding the annual gift tax exclusion for the year. For 2025, this threshold is $19,000 per recipient. Even if no gift tax is immediately owed because of the lifetime exemption, the form must still be filed to track cumulative gifts. If married couples elect to “split” gifts, each spouse must file a Form 709, even if no tax is due.

Form 709 requires detailed information, including the donor’s and donee’s identifying details, a description of the gifted property (e.g., stock name, number of shares), and its fair market value on the date of the gift. The form also asks for prior gifts to properly calculate the remaining lifetime exemption. Accurate valuation of the stock on the gift date is important for correct reporting.

The filing deadline for Form 709 is April 15 of the year following the gift. Filing an income tax extension (Form 4868) automatically extends the time to file Form 709. The completed form can be submitted to the IRS by mail, or in some cases, electronic filing options may be available through tax preparation software. While the donor is responsible for filing Form 709, the donee should maintain records of their cost basis for the gifted stock, as this information will be needed for future tax calculations when they sell the shares.