Gifting stocks can be a great way to teach children about saving and investing, especially if they receive stock in a company they are familiar with. There are several kid-friendly companies that make products they know and enjoy, such as, Disney, Hershey, McDonalds, Hess, DreamWorks Animation, just to name a few.
You can gift stocks that you purchase specifically for a child or stocks you already own. Since stocks must to be liquidated to spend the value, gifting stocks can be better than cash gifts if your intention is to help children or grandchildren pay for education, a down payment for a home, or an unexpected life expense. Dividends can teach children lessons about spending or saving. They can purchase more shares of the company, buy shares of another kid-friendly company, or save the dividends for a new bike or video game.
If you are giving only one share of stock, try OneShare.com. This website provides a colorful certificate and illustrated e-book that discusses investing basics. However, this service can be expensive. The service charges a $39 fee per share. If you chose Disney, which trades around $33 a share, you’d be more than doubling your cost basis for a share to $75. The stock price would have to double to breakeven on your original investment when the share is sold. While the purpose is to get kids involved, that’s a pretty costly lesson.
If you already own stock, you can give some or all of those shares to someone as a gift. The gift will have to be for an amount/value less than the annual gift tax exclusion of $13,000, or $26,000 if both spouses are giving. If gifting stocks you already own, it is important to have the purchase date of the stock, the purchase price, commission paid, and holding period for calculating cost basis and for capital gains tax calculations.
For a minor, you will need to open a custodial account. Trading sites like Fidelity and E*trade will transfer the shares for you for roughly $8-10 per transaction. However, getting a stock certificate will cost you between $75 and $100, and not all companies issue paper certificates. We suggest you talk to your broker about the additional charge and the availability of certificates by November 15, if you want to have the presentation in hand for the holidays.
One other consideration is that assets in a custodial account become the property of the minor when the child reaches the age of majority. This means the child can use the assets any way he or she sees fit. Their plans might not be for the higher education, as you planned. These assets also factor into the financial aid equation. Therefore, if you plan to gift a significant amount of stock, you may want to consult a financial adviser. Additionally, gifts made to custodial accounts are irrevocable gifts, so you cannot reclaim the assets.
Gifting stock can also play a role in passing income on to future generations, as a part of an estate plan. If the child or recipient is under the age of 14, they could be subject to the “kiddie tax” rules. Be sure to consult a CPA or tax adviser before making the gift, especially, if it is a part of a broader estate plan.
At Henssler Financial we believe you should Live Ready, and that includes teaching your children about saving and investing. If you have questions regarding selecting stocks your children might enjoy following, the experts at Henssler Financial will be glad to help. You may call our experts at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
