There can be several reasons for transferring stock to children, but the main reason for most people is to reduce the income tax due on the profits of stocks that has appreciated in value. People in the 15 per cent and over tax bracket pay up to 15 per cent of the appreciated value of a stock in income tax when the stock sells. Children, who are often in a bracket less than 15 per cent, pay as little as 5 per cent in taxes on the same stock and often end up paying absolutely nothing. If the profits from the sale of a stock were earmarked for a child's education or other expenses for a child anyway, it could save the taxpayer a great deal to simply gift the stock and allow the child to sell it and declare the income.
- Skill level:
Things you need
- Letter of transfer instruction
Sign the back of the stock certificate (if the certificate is in your possession) indicating that you wish to transfer the ownership of the certificate to your child.
Create a bill of sale, giving ownership of the stock to your children. Indicate on the bill of sale that the transfer in ownership is for "Services performed."
Send a registered letter to your stock broker if you do not have physical possession of the stock certificate (it is common for a stockbroker to hold shares for a client), return receipt requested, indicating that you wish to transfer certain stock certificates to your child. Your broker should handle all of the details and transfer the ownership, but stay on top of it--check with your broker in a few days to make certain that the transfer has gone through.
Tips and warnings
- Check with a tax accountant to make certain that transferring shares to your children will save you money on taxes.
- Shares can also be transferred by creating a trust for your children and then transferring ownership of the stock to the trust--check with a tax adviser to see if this would be a better method in your situation.
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