Each October, we like to remind clients “tis the season” to plan for making gifts of stock (or other assets) to those near and dear. For the gift to work well for everyone involved, we discuss with clients which shares are best to transfer, how many, the exact date of transfer, the recipient(s), and then to arrange for the actual transfer. It’s worth the effort usually because there are some very good reasons to give stock or other assets instead of cash.
For one, it’s a way to encourage kids or grandkids to invest and to save, instead of to spend. Giving them an actual investment can make them curious about other investments. At a minimum, it will require the kids to do some work if they want to cash out. Giving stock or other assets to a nonprofit can be part of establishing a legacy over time, as well as providing tax benefits. And you get the satisfaction of seeing the people and organizations you care about benefiting from your generosity.
How much to give: You can give up to $15,000 annually in gifts, including stock, without having to file a gift tax form with the IRS. If a married couple is giving, the amount doubles to $30,000 annually. And that is per recipient. So if you have three children and six grandchildren, and are married, you can give up to $30,000 to each of them.
Here’s an example: Say Mary gives $15,000 in Microsoft shares to each of her three grandkids. Since she didn’t sell the shares, she has no capital gain to report. And thanks to the $15,000 annual gift-tax exclusion, no gifts to report either. The recipients – in this case Mary’s grandchildren – won’t owe tax until they sell the Microsoft shares. And when they do sell, they might pay a 15% tax rate (or less) on the gain, depending on their personal incomes.
For more on giving stock and other assets, read our article Smart Giving and Gifting.
What happens if your gift is valued at more than the allowable annual gift limit? You must file a gift tax form with the IRS, so the excess amount counts against what is known as your lifetime federal estate tax exclusion, which is now about $11.2 million for an individual ($22.4 millon for a married couple). This is how much you can give away during your lifetime or upon death free of federal estate tax. Keep in mind that the amount of the federal estate tax exclusion is not permanent. It was doubled in the 2017 tax law and will revert back to previous levels at the end of 2025 unless Congress renews. For more on the implications of this change, see our article Estate Taxes: A Window of Opportunity.