Stock gift may have tax considerations

Q: I'd like to give some shares of stock I own to my children. What is involved in the gifting of stock?

A: The transfer of stock can be carried out by the donor if he or she holds the certificate, or through the custodian holding the security. Doing so requires the donor to either endorse the back of the stock certificate or attach a stock power of attorney, which should be sent to the transfer agent by registered mail with instructions for the gifting.

If the gifting is done through a custodian or a broker/dealer, the recipient would need to set up an account with that custodian and let him or her handle the transaction. There is generally no charge for this service. Stocks held in a tax-deferred account, such as an IRA, cannot be gifted.

There is no current tax liability to the recipient, but the recipient assumes the donor's adjusted cost basis for the stock. When sold, the difference between the cost basis and the market value is treated for tax purposes as capital gains or loss.

If the stock is inherited, based on current estate tax laws there may or may not be a step-up in basis (to the market value at the date of death of the donor), and the tax in this case would be the difference between the market value at the date of death and the market value at the date of sale.

Send your money management questions to medec@advanstar.com Answers to our readers’ questions were provided by Richard J. St. John, president, St. John & Associates, Inc., Roswell, Georgia.