By coinnews 
00:00 Speaker A
Whether it’s graduation or a holiday, stocks can be a great gift to help build longer-term wealth for the recipient. Here are a few things though to keep in mind before you gift shares of a company. Susan Hirshman, director of wealth management at Schwab Wealth Advisory, joins me now. Susan, good to have you here with us. So, let’s just start simple here. What are the benefits to gifting stock instead of just giving somebody the greenback, giving them cash?
00:36 Susan Hirshman
Yeah, I think the first is education, right? And it starts them building that foundation for investing. So, that’s number one. Number two is knowledge, right? So, they start understanding about how companies work and ownership. And the third is, perhaps, it’s not as liquid as cash, so they’ll use it for the long term versus the short term. And then you get something that could be an appreciating asset out of your estate if you’re subject to estate tax.
01:29 Speaker A
So, how can you use gifting stock as a teachable moment around financial literacy?
01:36 Susan Hirshman
Yeah, it’s and that’s the power, I say, of giving that that stock because it’s really about the connection you have with your children and talking to them about the why. What’s the purpose of this stock, right? Is it to enhance the long term? Is it to teach them about ownership of of companies? Is it to teach them about how markets work and the fact that you’re the only person that’s responsible for you, and you have to keep investing for the long term.
02:23 Speaker A
So now that we’ve covered the why, let’s get into the how. What account might a recipient need if you’re going to gift them shares?
02:34 Susan Hirshman
Yeah, so it’s depends, right? And it depends on the circumstances of the child. So let’s say if you have a child who actually has earned income. And again, if we’re trying to gift them stock for the long term and teach them the power of savings, instead of gifting them into a brokerage account, perhaps you want to use a custodial Roth IRA. And that word custodial is key because children, minors cannot own stocks. So it would have to be if you’re going to give it outright, so to speak, into a custodial account. They’re the owners of that stock, but they don’t manage the stock until they hit their age of majority, which is 18 or 21 depending on the state that they live in.
03:44 Speaker A
Are there tax implications that you need to keep in mind of gifting stock to a child or a young adult?
03:57 Susan Hirshman
There’s always tax implications, and so there is such a thing called the kiddie tax. And that was put into place, I think in the 80s. And it was purposeful because people were gifting shares of stock to their children and then having the children sell and not pay capital gains, and and the government, the IRS said, “No, no, no, that’s not good. We want the kids um to pay capital gain as well.” And so what it what it is is for kids who are 18 or under, or up into their 20s, who are full-time students, um if they have unearned income, it is taxed at the rate of the parent.
05:02 Speaker A
Okay. And so all this in mind, as you’re continuing to kind of help the child as well over time, learn more about their investment, what are kind of three keys that parents need to continue to communicate as they’re gifting stock and ensuring that, you know, it’s not just something that kind of falls on deaf ears if you will?
05:30 Susan Hirshman
Yeah, I think number one is purpose, right? Really connecting to the purpose of what is investing all about, right? What am I doing? The second is about the markets, right? Because and and setting realistic expectations, because we know that stocks go up and down. And if a child sees a stock that went down, they may lose interest, so it’s keeping them interested and teaching them about what’s going on in the world. And then the values that you have about money, and how is money related, right? And the values related to the stock itself and what you’re trying to accomplish and why you think it’s so important to have discussions and communication, and why you care for them and why, um, leaving a legacy of positive financial management is so key.