“Gifting stock to family members may lack the pizzazz of leaving a luxury car adorned with a bow in the driveway, but it’s a gift that can add value to their lives long after most other gifts have been forgotten.”

There are a number of ways to gift stock to family members, during your lifetime or after you die, according to a recent article from Think Advisor titled “Gifting Stock To Family Members: What You Need To Know”.  The idea is simple, but how the gifting is done and what taxes may or may not need to be paid and my home requires a closer look. A gift of stock today is made through an electronic transfer from your account to the investment account of the recipient of the shares. The rules for gifting shares of stocks also apply to gifting ETFs and mutual funds.Lifetime gifts. Stock gifts can be made in place of giving cash. The annual gifts limit of $16,000 per person or $32,000 (2022)  for a joint gift with your spouse applies, and the value of the stock on the day of the transfer constitutes the amount of the gift. If you give in excess of the annual gifting limits, this takes a bite out of your lifetime gift and tax exemption, which as of this writing is $12.01 million per person for federal estate taxes. That’s something to keep in mind when deciding on your gifting strategy.  As second consideration is the value of the gift given for capital gains purposes discussed below.

Using a trust for gifting. Instead of giving cash to a family member you could use a trust and transfer your shares into the trust, with a family member as a beneficiary of the trust. The treatment of tax and cost basis issues will depend upon the type of trust used. Your estate planning attorney will be able to help you determine what type of trust to use. Capital gains tax currently at 20% at eh federal level and an additional add on at the state level makes this a serious consideration in how you make gifts of stock. NY has no gift tax, but taxes capital gains as ordinary income at a possible rate of an additional 12-16%.

Transfer on death. In addition to transferring assets via a trust,, you can also gift stocks to others through your will, through a transfer on death designation and a brokerage account, through a beneficiary designation and a trust securities held there, or through an inherited IRA. Taxes and cost basis will vary, pending upon your circumstances.  The key advantage to transferring stocks with high appreciated cost basis is that the recipient receives a step  up in cost basis to the date of death value, thereby often eliminating the capital gains tax hit. This makes a gift of stock at death much more value than a lifetime gift.

Taxes and gifting stock. There may be no taxes due and  at the time stocks are given to someone as the gifting  of stock is passed in kind. The tax implications  occur on the sale of these gifted stock.. When stocks are given as a gift, like any other gift., there is no tax impact for the  person receiving the stock their only  responsibility if to say thank you. The donor or giver of the gift may also n=have no tax impact if  the value of the stock is within the annual gifting exemption limits, the donor does not have to do anything. If the gift value exceeds the limit, the donor/giver has to file a gift tax return and a portion of their unified gift and estate tax exemption is used. The recipient of the stock shares will not  owe capital gains taxes, until the stocks are sold. At that time, the original  cost basis  of the donor which was carried over to the gift recipient  will be used to determine the  capital gains tax liability This information is often not easily available to the recipient and should be provided by the donor  when making a  gift in life. . If the stock is sold  at a price below the donor’s cost basis the sale will be considered a  loss.  A cost basis can only increase if the new owner reinvests into the property  such as adding new stock dividends, otherwise the cost basis remains as a carryover from the donor

Gifting to children or grandchildren. Gifting shares of appreciated stock to children and grandchildren can make sense for the donors, since they are taking value of the stock out of their estate and gifting it to a child or grandchild in a lower tax bracket. The recipients or their parents can sell the shares and pay a lower capital gains rate, or even no capital gains taxes. However if the recipient is a current or future college student, or is the student’s parent, the gift could reduce eligibility for need-based financial aid. The stock may need to be reported as an asset belonging to the student or the parent, increasing their income when they are received and/or when they are sold. Speak with your estate planning attorney before gifting stock or cash to family members. There will be sensible ways to be generous without creating any issues for recipients.

Reference: Think Advisor (January 25, 2021) “Gifting Stock To Family Members: What You Need To Know.”

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