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Asked by Richard - 6 years ago
I thought lots of people might want to give their grandchildren stock. So I called my broker and got lots of forms for opening IRA accounts. I tried again with the same result. I don't think these are what I need. Anybody know how to give stock to another person?
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ilovegoogle Level 10 / Product Manager
Answered 6 years ago
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It's hard to transfer stock to another person and many companies make it difficult to do so. One easy option is to request the stock certificates and then deposit them into someone else's account. However, it's not really feasible nor safe with large investments.

If you want to give stock to your children, you can open an IRA account in their name and then transfer the stock from your brokerage account. They should allow you to do this easily and give you all the necessary paperwork.

However, a better solution might be to establish a trust for your grandchildren. It will require a lawyer but it will give you better control over how the money is invested and distributed to your grandchildren. It will also protect their inheritance from any lawsuits.

Here's some information from a website that discusses legal issues for seniors:

http://www.elderlawanswers.com/elder_inf...

Gifts to Grandchildren

Gifting assets to your grandchildren can do more than help your descendants get a good start in life; it can also reduce the size of your estate and the tax that will be due upon your death.

Perhaps the simplest approach to gifting is to give the grandchild an outright gift. You may give each grandchild up to $12,000 a year (in 2007) without having to report the gifts. If you're married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $96,000 a year with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed).

But you may have some misgivings about making outright gifts to your grandchildren. There is no guarantee that the money will be used in the way you may have wished. Money that you hoped would be saved for educational expenses may instead be spent on a fact-finding mission to Fort Lauderdale. Fortunately, there are a number of options to protect against misuse of the funds by grandchildren.


Direct Payment for School or Health Costs

You can pay for educational and medical costs for your grandchildren. There's no limit on these gifts, meaning that you can pay these expenses in addition to making annual $12,000 (in 2007) gifts. But you have to be sure to pay the school or medical provider directly.


Custodial Accounts Under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA)

Both of these Acts allow you to make gifts to a custodial account that parents can establish for a minor child. Since the account is in the name of the child, the tax liability is often shifted to the child, who presumably is in a lower tax bracket than you or the grandchild's parents. Gifts to such accounts are irrevocable, but you retain control of the money and decide how it will be invested.

UGMA and UTMA differ in the type of property they permit a person to transfer: States usually restrict UGMA investments to life insurance, cash and certificates of deposit, while UTMA allows a wider variety of investments, including mutual funds, stocks, bonds, real estate -- even artwork.

Either type of account should be managed by someone other than the parent; otherwise, the parent will be responsible for taxes on the account income. For children over age 14, all income is taxed at the child's rate. For children under 14, income below $800 is not taxed, income from $800 through $1,600 is taxed at the child's rate, and income over $1,600 is taxed at the grandparent's rate.

The major downside of these accounts is that custodians must turn the money over to the child when he or she reaches the age of majority (18 or 21, depending on the state). The child may then do as he or she wishes with the money -- and it may not be what you would prefer. In addition, as with custodial accounts, the child's sudden ownership of the account funds could jeopardize his or her eligibility for financial aid for college.


Gift Trusts

The above options have some serious drawbacks. Either there are no tax or estate planning advantages, or you have no control of the funds (or lose control after a certain point), or the money could affect a grandchild's eligibility for financial aid. An option that overcomes many of these problems involves transferring money into a trust established to benefit a grandchild. With the help of an attorney, you can draft a trust that reflects your express wishes about when the income and principal will be available to the grandchild, and even how the funds will be spent.

Transferring funds into such a trust offers the following benefits:

(1) You can reduce the size of your estate by transferring up to $12,000 (in 2007) into each trust you create for each grandchild. No gift taxes will be due in connection with the transfers;

(2) Although the trust owns the assets, you control them as trustee and can decide what type of investments to make;

(3) Income earned by the trust from amounts that you've deposited will not be taxed to you; the trust pays the taxes;

(4) Amounts deposited in trust, and the income earned from those funds, will be used for the benefit of your grandchildren; and

(5) You can provide that the trust terminate at any age you specify.

In order to qualify for these benefits, however, certain restrictions apply. These trusts are complex legal documents and should not be set up without the help of an experienced attorney. As a result, the chief downside of such trusts is the cost of establishing and maintaining them, which you should discuss with an attorney before going ahead with a trust.

As a final note on establishing such trusts, you must be totally comfortable with this gift planning strategy and the amount of money available to you in your estate. In short, you should only make gifts if you feel certain that the amount of funds remaining in your name and the amount of income they will produce will be adequate for your needs.
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