How Much to Transfer Stocks to My Kids?

Investing can give you the peace of mind of knowing you’ll be well taken care of in retirement. But there comes a time when you may consider what will happen after you’re gone. Even before then, you might want to use your gains to make sure your children live comfortably. Fortunately, there are ways you can transfer stocks as gifts at little to no cost.

Gifting Stocks to Relatives

The most inexpensive way to transfer stocks is to grant them to your child as a gift. There are limits to this, however. You can give each child up to $15,000 a year without being tax. If you exceed this, though, never fear. You can also give each child $11.18 million throughout the life of your estate. However, you should be aware that any amount that exceeds $15,000 a year will take from the total tax exemptions your estate will have after your death, assuming your worth will be anything even close to $11.18 million.

Transferring a Stock Certificate

There are options as to how a stock can be transferred. If the stock is in certificate form, you’ll merely go to your child’s bank or your own brokerage and sign the stock in the presence of someone serving as a guarantor. Look on the back of the certificate to see if there is a form to complete in order to transfer the stock and check with the bank before filling it out.

Transferring an Electronic Certificate

Many of the stocks being issued these days are electronic in nature, which means there isn’t a piece of paper to sign and hand over. Instead, the transfer will be automated, which means taking your child's information to your broker, who will make sure the transfer goes smoothly.

Selling at a Lower Tax Bracket

One of the biggest benefits to gifting appreciated stock to children is that younger taxpayers often fall within a lower tax bracket. This means that the capital gains tax you would incur when you sold the stock can be passed along to your children, who likely pay less in taxes on it.

For 2018, couples who earn more than $479,000 will pay a 20 percent tax on any long-term gains. For short-term gains, couples making $400,000-$600,000 will pay a 35 percent capital gains tax or 37 percent once they exceed $600,000. At the same time, a single adult child making $38,600 or less will pay no long-term capital gains tax at all, but there will be a 12 percent short-term gains tax on a taxpayer making $9,525-$38,700.

If you were planning to shift some money your children’s way anyway, this can be a great way to take care of them while also avoiding a hefty tax.

Exploring Benefits of Leaving Stock Alone

Before you pass the tax to your children, look into the benefits of waiting until after you die. You can include it in your will among the assets passed onto your children. Of course, the biggest benefit to doing that is that for the rest of your life, any stock you hold will continue to appreciate.

After your death, any tax on the earnings is paid by the estate, which means the person you have in charge of distributing the assets will take any taxes out first. However, in some states, heirs pay a separate inheritance tax. Those states are: Iowa, Kentucky, Maryland, Nebraska, Pennsylvania and New Jersey. The $11.18 million estate tax exemption applies, but in states with an inheritance tax, the cap can be lower than the federal tax.

In New Jersey, for instance, taxes vary depending on the relationship of the recipient to the deceased, but for Class C estate transfers, the inheritance tax starts at 11 percent for $1.075 million and increase from there.