Consumers are eager to receive equities as gifts, but the process can be tricky

M1 Team
M1 Team December 18, 2023

As holiday shopping is in full swing, you’ve probably felt the struggle of what to buy for the important people on your gift list. Add that on top of packed malls and porch pirates, the gift buying process can be tedious and frustrating. 

But if someone in your life is an educated investor, fanatic of a publicly traded company or even brand new to the idea of investing — another option for a gift could be the gift of company ownership. In fact, a recent Yahoo Finance poll shows 70% of Americans would happily receive an investment as a gift. However, there are a few things you should consider before you hit the buy button on your recipient’s favorite company stock ticker.

The buying and transferring steps of gifting stocks

You can gift stock to anyone, regardless of age. However, their age can affect the buying and transferring process. Here’s how it works. 

Let’s say there’s a child (under 18) in your life that loves Disney. Instead of spending a mortgage payment on going to the park, you decide to buy them 50 shares of Disney. As of 12/18, this will run you about $4600. 

In this case, you can open a custodial account for the child and purchase the shares for them within the account. Once they reach the age where they can take over the account (18 in most states), they will then be able to use the shares as they wish. 

If the recipient is over the age of 18, there’s a few different ways you can give the shares. One way is to purchase the shares in your own brokerage account, and then have them transferred to your recipient’s account. Keep in mind any potential fees that may come along with this. Another way is to gift your recipient cash (keep in mind yearly and lifetime gift taxes) and have them purchase shares on their own. Moreover, if you’re unsure of which stocks they would appreciate, you could give them cash and the autonomy to pick stocks on their own like Jack did.

What to mindful of in the process

There are a few things to remember if you decide to purchase stock for someone else.

You may have to give away the surprise

If you intend on moving the stocks to your recipient’s brokerage before Christmas, you will need specific information from them like their account number with their brokerage. And it could be a bit hard to get that info without raising eyebrows. 

Try to find out your recipients’ intent

With any asset, there are tax implications. If you give shares to someone and they immediately sell the shares, it could trigger a taxable event — and potentially result in them losing money from your initial gift amount. So if your person in mind could potentially sell the shares within a short time frame, you may be better off buying a different holiday gift.

Stocks you’ve already purchased are “locked in”

Let’s say you bought Disney stock five years ago (unfortunately, sources show the stock is down 16%), and you want to give this as your gift. If your gift recipient ever sells the shares, the cost basis and holding period remains the same from when you bought it, not when the child receives it.  

This is important for your recipient to know if they plan on ever selling the shares as they may incur capital gains taxes.

A fun idea to gift stocks and keep the holiday spirit

You may have seen pictures of old physical stock certificates, which is what investors had to keep record of their equity purchases. But because those days are long gone, gifting stock may seem disappointing since you can’t give anything physical. 

Well, there are a few ways to give stock and have something to unwrap during the holiday festivities. 

You can purchase a stock certificate as something for your gift recipient to show off like this one. It comes with a purchase of an actual share of the company that can be redeemed. But you can also buy a replica stock certificate just as a memento and something to give to your loved ones to open during the holiday festivities.

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