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Many investors are preconditioned to believe that the only options for handling equity investments that have risen in value are to keep holding in hopes of more upside or ring the register and depart the position. After all, profits aren’t profits until they’re taken.
Good news: there are more options than meet the eye when it comes to savvy moves with stocks that have gained value. Some of those options include elements of estate planning. There are tangible benefits to both giver and recipient in gifting appreciated stock to someone. Perhaps best of all, the giver can do this while they’re alive and see the perks unfold in real time.
Think about it. Cash is a popular choice as a graduation gift, whether it be for a high school or college grad. However, if the objective is to help the grad in a financial sense, stock is a far better option than cash because the former has limited return potential. Very limited. Conversely, the sky’s the limit with stock, particularly for graduates who are young and have the benefit of time on their sides.
Point is gifting stock, particularly when unrealized gains are involved, makes a lot of sense, but many clients aren’t aware of the benefits until an advisor helps them see the full picture.
It Pays, Literally, to Be the Giver
It’s often said “it’s better to give than to receive” and while that might not be the case in terms of gifting shares, there’s still substantial upside for the gifter and it goes beyond doing something nice.
“Not only could you avoid capital gains taxes, but you could also remove potential appreciation from your estate, which is important if you're worried about estate taxes,” notes Susan Hirshman of Charles Schwab. “However, if the value of the shares exceeds the annual gift tax limit ($19,000 per recipient in 2025), the excess amount will count against your lifetime gift and estate tax exemption ($13.99 million per individual in 2025).”
Predictably, there are some trade-offs. For example, the kiddie tax comes into effect when the recipient is a full-time student under the age of 24. There are also implications for recipients of financial aid.
“Likewise, up to 20% of their income (such as from the sale of the assets) in excess of $11,510 will be included in the calculations for the 2025–2026 academic year,” adds Hirshman.
Benefits Abound for Receivers
Receiving gifts is always nice and it’s even better when the gift has the potential to gain value, but that’s not the end of the perks for recipients of appreciated stock.
As Hirshman notes, particularly if the recipient of gifted equity is a younger person, the gift is an opportune time to bolster that person’s financial literacy. It’s also a perfect opportunity to discuss with them the tax burdens they’ll have to deal with should they opt to sell the gifted shares.
“Fortunately, a young person who is independent is likely to have a low capital gains tax rate—possibly even 0% if their income falls within the lowest tax bracket (under $48,350 for single filers in 2025) when they sell and if the shares have been held longer than a year cumulatively by the original owner and the recipient,” concludes Hirshman.
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