To gift stocks to a child, you open a custodial brokerage account under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), then either transfer shares you already own into it or buy new shares inside it. The child legally owns the assets from that moment, an adult custodian manages them until the child reaches the age of majority, and three tax rules shape what happens next: the child inherits your cost basis, gifts above an annual threshold require a return, and the child’s investment income can be taxed at the parent’s rate.
Open a UGMA or UTMA Custodial Account
Minors generally cannot enter binding contracts, so they cannot open a standard brokerage account. UGMA and UTMA accounts solve that by letting a child legally own securities while an adult custodian manages the account on the child’s behalf. Either type works for gifting stock. UTMA, adopted by most states, also allows non-financial property like real estate; UGMA is limited to cash and publicly traded securities.1Cornell Law School. Uniform Gifts to Minors Act (UGMA)
Three features of these accounts are worth understanding before you fund one:
- The gift is irrevocable. The child owns the shares from the moment the transfer settles, and you cannot take them back or redirect them to someone else.
- The custodian owes a fiduciary duty to the child and cannot spend the money on personal expenses.
- When the child reaches the age of majority set by state law, typically 18 or 21 and in some states up to 25, the custodian must hand over full control.2Social Security Administration. POMS SI SEA01120.205 – The Legal Age of Majority for Uniform Transfer to Minors Act (UTMA)
Once that transfer date arrives, the account is the child’s to use however they choose. Tuition, a car, or anything else. You have no legal say.
To open the account, you’ll need the child’s full legal name, Social Security number, and date of birth. The account is reported under the child’s SSN, and the birthdate determines when custodianship ends.3Vanguard. UGMA/UTMA Accounts
Transfer Existing Shares Into the Account
If the stock you want to give already sits in your own brokerage account, request a Letter of Authorization or Transfer of Assets form from your broker. You’ll identify the security by ticker symbol or CUSIP, the number of shares, and the receiving custodial account.
For larger transfers, the brokerage may require a Medallion Signature Guarantee, a certification stamp from a participating bank, credit union, or broker-dealer that verifies your identity and authority to move the shares. It is not the same as a notary seal.4U.S. Securities and Exchange Commission. Medallion Signature Guarantees: Preventing the Unauthorized Transfer of Securities Some firms waive it under a dollar threshold, so ask before making the trip.
Before you send anything, pull your original purchase records: the date you bought the shares and the price you paid. The child inherits that cost basis, and the receiving broker’s statement should reflect it correctly. Processing usually takes three to ten business days. Review the confirming statement for the right share count and basis as soon as it arrives.
Buy New Shares Inside the Custodial Account
If you’d rather buy fresh shares than move existing ones, fund the custodial account by ACH transfer from a bank account and place the trade through the brokerage’s platform. Many major brokerages now allow fractional shares in custodial accounts, so you can invest a set dollar amount rather than buying whole shares of an expensive stock.5Fidelity Investments. Custodial Account – Plan for a Child’s Future Save the trade confirmation. The purchase price and date establish the cost basis the child will need when the shares are eventually sold.
The Cost Basis and Holding Period the Child Inherits
Gifted stock does not get a fresh cost basis at its current price. The child takes over your original basis, a rule known as carryover basis.6Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
An example: you bought 50 shares at $20 each and gift them when they’re worth $60. The child’s basis stays at $20. If the child later sells at $80, the taxable gain is $60 per share, not $20.
There’s one exception for losers. If the stock’s fair market value on the gift date is below your original basis, the child uses that lower fair market value to figure any loss on a future sale.6Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If the child sells at a price between the two figures, there’s no gain and no deductible loss. Because of this quirk, gifting a stock that’s dropped is usually less tax-efficient than selling it yourself to claim the loss and gifting the cash.
The child also inherits your holding period. If you held the stock more than a year before gifting it, the child qualifies for long-term capital gains rates on sale, even a sale the next day.7Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
Federal Gift Tax Rules for 2026
For 2026, you can give up to $19,000 in stock or other assets to any one recipient without triggering a gift tax filing.8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The annual exclusion applies per recipient, so three children can each receive $19,000 in the same year with no return required.
A married couple can elect to split gifts and treat the transfer as coming half from each spouse, doubling the exclusion to $38,000 per recipient. Both spouses must file Form 709 to make the election, even if only one actually made the gift.9Internal Revenue Service. Instructions for Form 709
When a gift exceeds the annual exclusion, you file IRS Form 709 by April 15 of the following year.10Internal Revenue Service. Gifts and Inheritances Filing rarely means paying. The excess counts against your lifetime gift and estate tax exemption, which for 2026 is $15,000,000.8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Most donors will never owe federal gift tax, but the return still documents how much of that exemption you’ve used.
Record the stock’s fair market value on the gift date. You’ll need it for Form 709 and for the child’s future capital gains calculation.
The Kiddie Tax on the Child’s Dividends and Gains
Once the shares are in the custodial account, any dividends the stock pays and any gains realized inside the account count as the child’s unearned income. If that unearned income tops $2,700 in a tax year, the excess is taxed at the parent’s marginal rate rather than the child’s.11Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
The kiddie tax applies if, at year end, the child is:
- under 18;
- 18, and earned income didn’t cover more than half of their own support; or
- 19 through 23, a full-time student, and earned income didn’t cover more than half of their own support.12Internal Revenue Service. Instructions for Form 8615
When the tax applies, Form 8615 goes with the child’s return. Once the child ages out of these thresholds, earns enough to cover more than half their own support, or files a joint return, all investment income is taxed at the child’s own rate.
Effect on Financial Aid
Custodial accounts are not neutral for college aid. Because the assets legally belong to the child, the FAFSA assesses them at 20 percent, so every $10,000 in the account reduces the student’s aid eligibility by roughly $2,000. Parent-owned assets are assessed at a maximum of about 5.64 percent. Schools using the CSS Profile may assess student assets at 25 percent. If need-based aid matters to your family, factor the custodial balance in well before senior year of high school.
Records to Keep
Organized records from day one prevent problems at tax time and when control transfers. Hold on to:
- your original purchase date and price, which become the child’s carryover basis;
- the fair market value on the gift date, needed for Form 709 and the loss-basis rule;
- brokerage transfer confirmations showing the share count and settlement date;
- trade confirmations for any purchases made inside the custodial account; and
- the annual 1099-DIV and 1099-B forms issued under the child’s SSN.
The donor needs these for gift tax reporting. The child will need the basis and holding period years later, when it’s time to sell.