FINANCE: This Christmas, Give the Gift of Stock and Enjoy the Tax Benefits

Jeff Nelligan; Financial Advisor and Senior Vice President, Global Wealth Management Division of Morgan Stanley- Denver
Posted

With the looming “fiscal cliff” weighing heavily on everyone’s minds, the idea of giving stocks to children and teenagers this holiday season is sounding more and more attractive to some parents and grandparents.

From now until the end of the year, you have an opportunity to remove assets from your estate through gifting strategies that can help reduce estate taxes and provide your loved ones with a more substantial legacy. That’s because current legislation allows a $5 million lifetime gift tax exemption. That figure will decrease to $1 million unless Congress takes action. (Morgan Stanley GWA, “Are You Taking Advantage of the New Gift and Estate Tax Law”)

Giving away some of your stock could also reduce your exposure to capital gains taxes which are also set to increase as part of the fiscal cliff scenario. Keep in mind that the cost basis of the stock transfers to the recipient.  (Passy, C. 2012, December 4. The tax benefits of gifting stock. Marketwatch.)

At this point, we still don’t know where the fiscal cliff scenario is going to land, but regardless, gifting stock is an enduring way to pass on what we have learned about managing and preserving wealth to the next generation.  It can teach them a lesson about the markets as well as encouraging children to save while cultivating a responsible approach toward managing money.  

When gifting an investment, take the time to explain basic investment types such as cash instruments, stocks and bonds. Make investing interesting by engaging in conversations about companies that provide popular children’s products such as toys or clothing.  And be sure to explain the powerful concept of compound interest, so children can see in numbers the difference between starting to save early and leaving it until later.

The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.  Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC, Member SIPC.

Tax laws are complex and subject to change. Morgan Stanley, its affiliates, and Financial Advisors do not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account. 

 

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