So you have a mixture of stocks and bonds that you would like to gift to friends, family, and your favorite charity.
It’s not as simple as just going down the list and picking a random stock from your portfolio to gift. There is some strategy involved that will benefit you and those receiving the gifts.
Some things you should consider include:
- Appreciation of the stocks in your portfolio
- Income needs of the one receiving the gift
- Are you holding the stock at a loss?
- Age of recipient
Let’s take a look at the following example and decide who you should gift the following stocks in your portfolio to:
You have 4 holdings in your portfolio that you would like to gift. Among the people you want to gift these holdings to include:
- Your child
- Parent
- Favorite charity
- Keep one for yourself
| Fair Market Value | Basis | Yield | Future Appreciation | |
| Large Cap Mutual Fund #1 | $10,000 | $2,000 | 1% | 4% |
| Large Cap Mutual Fund #2 | $10,000 | $5,000 | 0 | 10% |
| Bond Mutual Fund #1 | $10,000 | $10,000 | 6% | 1% |
| Bond Mutual Fund #2 | $10,000 | $15,000 | 3% | 0 |
- Your child: You should gift the “Large Cap Mutual Fund #2 to your child since it has the greatest future appreciation. Your child likely doesn’t need a gift that produces income, but would best be suited for a holding that will produce high returns over a long period of time and be able to take advantage of compound interest.
- Your parent: You should gift “Bond Mutual Fund #1” to your parent because of the high yield % this holding produces. Your parents may be retired and in need of an income producing holding. If they are retired they likely will be in a low tax bracket and therefore not owe as much taxes on the income produced.
- Your favorite charity: You should gift “Large Cap Mutual Fund #1” because of the low basis. This way you can avoid paying capital gain taxes and the charity will get the full fair market value of the holding as they avoid the capital gain taxes as well. Refer to our recent blog post on gifting stock to charities for further explanation of the benefits of this transaction.
- Keep one for yourself: You should hold onto “Bond Mutual Fund #2” because this holding is at a loss. This means you invested more money into the fund that it is worth now. You should either keep the holding or sell it and recognize the capital loss which you can’t do if you gift it.
This concept can be confusing when faced with a wide range of holdings in your portfolio. Therefore I recommend having a CERTIFIED FINANCIAL PLANNER™ walk through a gifting strategy with you to most efficiently achieve your gifting goals.
