Gifting Appreciated Stock to Grandkids: The Tax-Smart Way to Give
Give the shares, not the cash. How gifting appreciated stock can move a gain into a grandchild's low bracket — and the kiddie-tax trap to avoid.
If you already own stock or funds that have grown in value, gifting the shares themselves to a grandchild — instead of selling them and gifting cash — can be a genuinely tax-smart move. Here's the idea, in plain English.
How it works
When you gift appreciated shares, the grandchild generally inherits your original cost basis (what you paid). If those shares are later sold while the grandchild is in a low tax bracket, the capital-gains tax owed can be very low — sometimes zero. In effect, you shift a gain from your higher bracket to their lower one. Done deliberately in a custodial account, this is a version of tax-gain harvesting.
| Sell, then gift cash | Gift the shares | |
|---|---|---|
| Who pays the capital-gains tax | You (likely a higher bracket) | The grandchild, when they sell (often a lower bracket) |
| Potential tax on the gain | Your rate | Possibly 0% at low incomes |
The gift-tax side (usually a non-issue)
Gifts are generally covered by the annual gift-tax exclusion — a set amount per recipient, per year, that most families stay well under. Above it, you typically just file a form and use part of your lifetime exemption; actual gift tax owed is rare.
Two traps to watch
- The kiddie tax. A child's investment income above certain thresholds can be taxed at higher rates, which can claw back some of the benefit. See the kiddie tax, explained.
- Loss of control. In a UTMA, the shares legally become the child's at the age of majority.
Cost-basis, gift-tax, and kiddie-tax rules are detailed and change — MemoryBank is an education and display tool, not a financial or tax advisor. Confirm your situation with a CPA before acting.
What to do this week
- Ask your brokerage about transferring appreciated shares into the grandchild's custodial account (rather than writing a check).
- Keep the amounts modest so the kiddie tax doesn't undo the benefit.
- Coordinate the timing of any sale with a tax professional.
See it in one place
MemoryBank shows your kid's UTMA, 529, Roth IRA, brokerage, and savings — across every institution — in a dashboard they can actually understand.
Related guides
Do You Pay Taxes on a Custodial Account? A Parent's Guide
Yes — but it's the child's, and usually small. What gets taxed, the thresholds, and which return gets filed.
Gift Tax and Custodial Accounts: The Annual Exclusion, Explained
Funding a kid's account is a gift — but the gift tax rarely costs a normal family a thing. The annual exclusion, explained.
Tax-Gain Harvesting in a UTMA: Resetting Cost Basis Tax-Free
Use the kiddie-tax thresholds on purpose — realize long-term gains each year to step up cost basis at a 0% rate.
MemoryBank is a display and education tool, not a financial advisor. Nothing here is investment, tax, or legal advice. Verify program details with the IRS, your tax advisor, or a licensed financial professional before making decisions.