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.
Key takeaways
- Gifting the shares themselves, rather than selling and gifting cash, shifts the gain out of your bracket.
- The grandchild generally inherits your original cost basis, so tax is owed only when they sell.
- Sold while the grandchild is in a low bracket, the capital-gains tax can be very low — sometimes zero.
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. It's one tactic within the bigger question of saving and investing for a grandchild.
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.
Frequently asked questions
What happens to the cost basis when I gift appreciated stock to a grandchild?
The grandchild generally inherits your original cost basis — what you paid for the shares. If the 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.
Is it better to gift shares or sell the stock and gift cash to grandkids?
If you sell first, you pay the capital-gains tax at your rate, which is likely a higher bracket. If you gift the shares themselves, the grandchild pays when they sell — often in a lower bracket, possibly 0% at low incomes. That's what can make gifting the shares a tax-smart move, though cost-basis and tax rules are detailed and worth confirming with a CPA.
Do I owe gift tax when gifting stock to a grandchild?
Usually not. 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.
Does the kiddie tax apply to stock gifted to a grandchild?
It can. A child's investment income above certain thresholds can be taxed at higher rates, which can claw back some of the benefit — one reason to keep the amounts modest and coordinate the timing of any sale with a tax professional.
Who controls stock gifted into a grandchild's UTMA?
The gift is irrevocable, and in a UTMA the shares legally become the child's at the age of majority. That loss of control is one of the two main traps to watch, alongside the kiddie tax.
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.
Written by Josh Ackerman
Founder of MemoryBank. A computer scientist and M.B.A. with 20+ years of investing and technology experience, Josh built the first MemoryBank in his basement so his three kids could watch their own accounts grow. More about Josh →
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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.