Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

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mercutio2
Posts: 12
Joined: Sat Nov 09, 2024 1:31 pm

Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

Post by mercutio2 »

My daughter (under 18) has just enrolled in expensive club sports. I support her doing this (both emotionally, and financially) although I’m aghast at how expensive this stuff is; $6,000 for a year!

It occurred to me recently that I have a lot of stock I’ve been waiting to sell down in retirement when my capital gains bracket is 0%. My understanding is that I could do this sequence:
  1. Transfer appreciated stock to daughter’s UGMA custodial account; gift does not change stock’s cost basis, amount is well under gift-tax exclusion
  2. Daughter sells stock, earning a capital gain (80% of the value of the stock), proceeds stay in custodial account
  3. I pay for expensive sports out of pocket, then I reimburse myself from the custodial account balance (after consultation with my daughter; that money is hers the moment I transfer it to her custodial account), OR:
  4. I pay the club sports directly from the custodial account. This makes the accounting/purpose of the expense clearer, but money is fungible, so it’s unclear to me if there’s a reason to prefer this
  5. I want to avoid paying kiddie tax; California and Federal annual income taxes treat the first $1,250 of income (including capital gains) as untaxed, the second $1,250 is taxed at my daughter’s capital gains rate (i.e., zero!)
  6. BUT Publication 929 says if my daughter’s unearned income is over $1,100, she must file a tax return
In summary, I transfer $3,000 in stock, cost basis $600, sell the stock, file a 1040 for my daughter but pay no income taxes on the capital gain.

————

My first question is, is all this factually correct? Is there any value in going through the hassle of 3 vs. 4? Other than a simple note about the transaction reason/dates, any records I need to keep for 3?

My second question (assuming I didn’t make a meaningful mistake above) is: My appreciated stock is held in an ETrade account. I currently have a custodial account at Schwab. I foresee doing this for several times over the coming years. Should I:
  1. *Go through the process of transferring the stock between brokerages? OR:
    *Open a second custodial account at ETrade, to reduce paperwork?
Either way, anyone have specific experience gifting stock from ETrade (now Morgan Stanley)? What forms did you fill out, how long did it take? I did this for a charitable gift of appreciated stock from ETrade many years ago, and it took weeks of hassling back and forth. I’d love to find a relatively low hassle way to do this.

Thanks for your help!
Topic Author
mercutio2
Posts: 12
Joined: Sat Nov 09, 2024 1:31 pm

Re: Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

Post by mercutio2 »

Bump!
ssel
Posts: 131
Joined: Sat Dec 29, 2018 7:39 pm

Re: Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

Post by ssel »

mercutio2 wrote: Thu Nov 28, 2024 9:35 am California and Federal annual income taxes treat the first $1,250 of income (including capital gains) as untaxed, the second $1,250 is taxed at my daughter’s capital gains rate (i.e., zero!)
$1250 is from 2023. In 2024 this increased to $1300.
BUT Publication 929 says if my daughter’s unearned income is over $1,100, she must file a tax return
It was $1100 back in [looking it up...] 2021. Maybe they don't update the publication every year. In 2024 this number is also $1300.
Also, this assumes that she has no earned income.
Wannaretireearly
Posts: 5816
Joined: Wed Mar 31, 2010 4:39 pm

Re: Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

Post by Wannaretireearly »

Following. Thanks for the post op! Similar questions and concerns
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
privateer79
Posts: 528
Joined: Fri Apr 04, 2008 12:21 am

Re: Nitty gritty mechanics of gifting appreciated stock to UGTA/UGMA account

Post by privateer79 »

I've done similar things for several years with private school tuition but all within E*trade....

no, I don't think 3 vs. 4 matters if your a custodial parent..


for simplicity I would just open an additional E*trade @ MS account...

I think I've filled out an internal transfer form... usually it goes through without a fuss (I suspect having the two accounts "linked" lowers their security guard around possible mistakes or theft)

in my experience it takes about a week or two for the shares to move over... and even though I submit the forms for my 2 progeny within minutes of each other... they may actually be executed several days apart.

I've also had issues with shares of the wrong basis (even thought its correctly specified in the form) being transferred and having to call and get it corrected .

(i.e. if you want to do something for 2024 tax year... start NOW!)

I end up filing a very quick/light return for my kids each year via turbotax... now that you might be filing a return for the kiddos it might open other opportunities... in my state my kids can get ~170$ refundable state tax credit for contributing a few hundred bucks to their 529's... so they do that ;)
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