Stocks are the gifts that keep on giving. Whether you can’t think of any other gift ideas or you’d like to invest in the future of a friend or relative, buying stocks as a gift is a practical, generous way to show someone you care.
The process of buying stock for someone might seem confusing, so in this article, I’ll cover how to buy stocks as gifts. That way, you can determine whether this is a good option for you this holiday season.
What types of stocks can you buy as gifts?
On a very basic level, a stock is a fractional portion of ownership of a corporation. When you invest in a company, you become the owner of a small segment of the company and receive a proportional amount of the company’s profits in turn.
When you purchase stocks as gifts, you’re giving the recipient an amount of money that has the potential to increase (or decrease) over time. Most people buy stocks with the intention of the share becoming profitable. Still, sometimes people use gift stocks more as a lesson in financial management for a younger person, regardless of their potential future value.
You can purchase stocks as gifts through the same processes you’d invest in shares for yourself. However, some stock purchasing options make the gifting process more straightforward than others.
For example, Public lets you send your friends and family free stock worth up to $50 this holiday! Best of all, you can pick which stocks you want to send. Plus, you can send free stock to as many friends as you’d like, even if you yourself don’t have a Public account.
How do you buy a stock as a gift?
You can find several ways to give stocks as a gift. Each one varies in ease of use, flexibility, and the amount of risk involved in the purchase.
Gifting stocks through a broker
One way to gift stock is through an online brokerage. In most cases, you won’t have a physical paper certificate for the stock (like they used to do way back in the day), but most brokers will still allow you to transfer some or all of your ownership in a particular stock to someone else.
To do this, the person you’re gifting the stock to has to have an account with a brokerage – whether it’s the same as yours or not. If it’s the same brokerage, the process tends to be a bit easier, however.
Your best bet is to find the FAQ page of your brokerage and look for “transfers” (or call them to ask). For instance, TD Ameritrade has a page on transfers – both internal and external – which gives you guidelines on moving stock out of your account with them.
You’ll need to have some information before you do a transfer, too, such as the other person’s account number, Social Security number, and potentially a few other bits of information.
As you can see, it is a bit trickier to gift shares through a brokerage, so if this isn’t a good option for you, consider your other options.
Gifting through a direct stock purchase plan
If you want to skip any intermediary processes in your purchase, consider buying your stock directly from the company in which you’re investing, using something called a direct stock purchase plan (DSPP). Many large companies allow investors to purchase stocks without charging any fees, and you can sometimes receive a discount if you go through the issuing company.
Purchasing your gift stock directly through the issuing company is one of the easiest methods—you just fill out a form with the recipient’s contact information and mail in your check. For example, Home Depot has a direct stock purchase plan that makes it easy to gift shares. They use a transfer agent to make it all happen.
Some other companies that offer DSPP include Walmart, Coca-Cola, Intel, Starbucks, and Pfizer. The easiest way to determine if a company has a DSPP is to search [company name] + DSPP.
If your recipient decides to purchase more stock through the same company down the line, they’ll simply need to send in another check. Similarly, if you want to turn the share into a recurring gift, you can use the same method to purchase additional shares for the recipient year after year.
Gifting stocks through a stock-gifting company
The third, and probably easiest, way to gift stocks is by using a company specializing in gifting stocks. As you’ll see below, these companies have websites set up to make the process easy for you to find a stock (of which you have a much broader selection than DSPPs), pay for it, and have it sent to someone else.
Let’s dive into these companies in more detail.
Where can you buy stocks as gifts?
As I mentioned above, several websites allow you to buy stocks as gifts through a quick and easy online process. Here are some of the best ones.
As I mentioned above, Public is one of the best places to purchase stocks to give as gifts. They make it incredibly easy to send your loved ones free stock worth up to $50!
You can pick which stocks you want to send, and you can send free stock to as many people as you can think of. Best of all – you don’t need to have a Public account yourself to send stocks through the platform.
Betterment is a financial advisory company that helps automate investments, from cash management to financial advice, to trading. This app is an excellent tool for beginners to learn the ropes of the investment world before moving along to purchasing individual stocks.
Though you cannot purchase stocks to gift to another person through Betterment, you can donate your qualified shares to charities. If you would like to give a financial asset to someone without the hassle of maintaining the account, donating to a charity of that person’s choosing might be a more practical, thoughtful option.
SparkGift is a website designed to help you purchase stocks as gifts. You can choose from over 6,000 stock and exchange-traded fund (ETF) options to send to friends or family members.
This site streamlines the stock-buying process: you can send your stock gift certificate in under a minute, and you don’t need to go through any title transfers to get the share into the hands of your recipient.
Another great feature of SparkGift is that you can limit your purchase amount regardless of the stock price. If you do not want to purchase an entire stock, you can buy a fractional share instead, for as low as $20.
SparkGift does charge a purchasing fee—around $2.95 plus 3% of the cost of security—but your recipient will never need to pay any fees on their gift.
GiveAShare is another site that allows you to purchase stocks as gifts. The founders designed the site as a simple platform for grandparents or parents to buy stock for children.
GiveAShare offers a limited number of premium companies in which you can invest, like AT&T, Coca-Cola, Disney, and Facebook. If you would like to purchase a stock outside of these high-profile options, you can do so through the site’s custom stock page.
GiveAShare has a unique option for you to purchase gift certificates for its stocks. Your gift recipient can use this certificate to purchase their own stock instead of you buying it for them.
This site has a minimum purchase amount of $40 and a maximum amount of $1,452. However, GiveAshare charges higher fees than other sites—for example, you may pay up to $40 in fees on top of the stock’s cost. Though GiveAshare is not the most affordable option, it does offer more versatility than other sites.
If you’re looking for a limited selection of specialized stocks, UniqueStockGift is an excellent company to check out. The site offers around 100 stock options to choose from, and you can specify your gift for a holiday or occasion, such as Christmas or a bar mitzvah.
UniqueStockGift is not a registered brokerage firm. Instead, it acts as a middleman between the purchaser and the stock companies. However, the site’s stock-buying process is simple and direct, requiring just a few personal information items for you to register.
This site does charge a transfer fee that varies depending on your gift amount and the company whose stock you are purchasing.
Computershare has a long history in the stock industry, and many users choose this site over others because of its option to purchase stocks directly from hundreds of companies.
Along with its stock-buying options, Computershare also acts as a custodian throughout your investment, enables you to sell your share, and allows you to participate in dividend reinvestment plans (DRIPs).
Each stock has a different minimum purchase amount that could range from $0 to $1,000. The fee for each also varies depending on the company.
Though Computershare does have the option to purchase stocks as gifts, these purchases come with high fees. It may be more practical to buy more than one at a time to cut down on the fee-to-stock ratio.
Nevertheless, Computershare is a reliable, well-known site that millions of investors have trusted to purchase personal and gift stocks alike.
Is it a good idea to gift stocks?
Though there are many benefits to gifting stocks, you should also be aware of some risks and additional fees associated with your purchase.
Capital gains taxes
If you gift a stock that has appreciated, it will incur capital gains taxes. The tax rate varies depending on the amount of time you have owned the stock before gifting it, the original cost, and the stock’s value at the time of the gift.
In most cases, the tax responsibility will transfer from you to the recipient at the time of your gift. As a result, your recipient will end up paying some of their gift back once they cash it out. You can always offer to pay the tax amount for them, but keep in mind that it will still be their financial responsibility.
Short-term capital gains
Holding a stock for twelve months or less classifies it in the short-term capital gains category. These stocks are taxed as normal income, so when your recipient cashes out a short-term stock, they will add the stock amount to their regular income and pay taxes on this total amount.
Short-term capital gains are almost always taxed at a higher rate than long-term ones, so you may advise your recipient to hold onto their stock until it passes the twelve-month holding period.
Long-term capital gains
Any stock that you or your recipient have held for more than twelve months classifies in the long-term capital gains category. Long-term capital gains fall into a different tax bracket than taxable income, and the tax rate is usually more favorable than your income tax rate.
If you gift a stock that you have held for longer than twelve months, your recipient will pay anywhere from 0% to 20% in taxes at the time of sale.
Gift tax rules
Large monetary gifts are subject to taxation, regardless of whether they are in stocks, cash, or other assets.
If the stock’s value is more than $15,000 on the date of the gift, you will need to file a gift tax return. The IRS will determine the excess over this amount and apply it to your lifetime gift exemption limit. You will not have to pay any taxes until you reach this limit of $11.58 million.
Gifting stock versus giving cash
Some people may feel more comfortable gifting cash rather than stock.
Gifting stock comes with several financial benefits. The stock may appreciate over time, you can transfer the tax rate to the recipient, and stocks are more creative and fluid gifts than cash.
On the other hand, gifting cash usually implies a one-time gift rather than a long-term investment. If you decide to give cash to a minor, you will not have any control over how they spend the money, as you would with a trust or restrictive stock.
If you do decide to gift cash instead, keep the gift tax rules in mind. Any large gift amounts will be subject to taxation.
Other financial gifts
Instead of gifting a stock, you may also decide to transfer another financial gift to your recipients, such as a savings account or Roth IRA. These gifts will not incur taxes until the recipient retires.
You can also give a financial gift to help a person pay off their loans. You could gift a monetary amount towards a student’s college tuition by either paying the school directly or opening up a college savings plan in their name.
Consider what type of financial gift might be the most beneficial for your recipient, be it stocks or another asset.
You can place restrictions on your stock gifts, too
If you decide to give stock to a child, you may want to place restrictions on the share that disable the recipient from cashing out until they reach a certain age.
To maintain full control over the child’s stock, you can set up a custodial account that allows you to manage the funds without holding ownership of the account.
You can decide when the recipient will take possession of the assets at the time you set up the account. Many people choose to wait until a child is 18 or 21 before allowing them to manage their funds.
You may choose to set up a trust fund for a child instead of a custodial account. Trust funds offer more flexibility and control than stocks, as they allow you to create a detailed outline that lists the ways the recipients can use the funds.
Though many people gift trust funds to children, they are also popular gifts for adults. Having control over the account’s purposes allows you to trust that the recipient will use the money wisely and make your investment worth it.
Who can you gift stocks to?
You can gift stocks to friends, family, or a charitable organization.
Gifting stocks to a charity is a great way to make an altruistic monetary contribution without a taxation burden. Charities do not pay taxes on financial gifts, and when you donate stocks to a charitable organization, you can benefit by counting your gift as a tax deduction as well.
Many people choose to donate appreciated stocks to charities to eliminate the tax on capital gains that would incur over time. The charity can reap the stock’s financial benefits, and the giver can deduct the value of the gift from their yearly taxes.
Though gifting to charity is pretty straightforward, you should utilize an accountant or broker to help you determine an appropriate donation amount. You can gift the stock directly to the charity through a trust or a donor-advised fund.
Family & friends
You can gift stocks to family or friends through any of the above methods. Keep in mind that either you or the recipient will have to pay taxes on the gift and that minors’ stocks typically have a lesser tax rate than those owned by adults.
Instead of buying an unappreciated gift or giving a boring gift card for the next holiday, consider purchasing stocks as a gift for your friends or loved ones. Doing so may start your recipient on the road to financial health and provide them with a decent chunk of cash once they sell the stock down the road.