Best Tax Route for Gift of Stock?

Question

I currently manage an account that is not in my name but rather my grandmother's. At the beginning of the year there was ~20k and currently there is ~50k. This account needs to be transferred to my name, and I was curious what the best way to do this on a tax basis is. These gains are all long-term capital gains at this point, and are invested in 1 stock. My current income for the year will not exceed 12k in salaries etc, and my grandmother's will be around 50k. My next near income will be substantially higher so I wanted to get this done in the next few weeks. Thank you in advance

I appreciate your input and that is exactly what I was looking for. As far as estate planning and the propriety of me giving this entire amt to myself....the money in this account was mine to begin with when I entered college (was 7.5k). It was put there so that college financial aid was easier since my family did not make much, but this account would interfere with my financial aid options. So the 7.5k I grew into a current ~50k through those four years, and now the account is being transferred back to me, for the original purpose of helping to pay off my college loans, and potentially a down payment on a home. There should be no issue with propriety, and as far as keeping it in her name until death...she is very young as far as grandmothers go, and the original purpose of this account facilitates getting this transfer done sooner than later. I do not plan on selling the stock for a while yet (as it was entirely my investment choice as well). Thanks all!!

Answer 1

Actually, he would get her holding period as well as her basis if she gifted the stock (IRS publication 551). If it's already long term gain, it would be long term for him to.

BUT, I've got serious reservations about the propriety of his managing the account as well as making the gift to himself in her name. I imagine all of her other grandchildren would have the same question.

Answer 2

If your grandmother makes a gift of these stocks she'll have to file a Gift Tax return. It's possible that she would have to pay Gift Tax if she has been unusually generous with gifting during her lifetime and has already used up her lifetime $1,000,000 exclusion. Most likely she won't owe any Gift Tax, however.

You will receive her pass-through basis in the stocks, adjusted for any Gift Tax that she does pay. That is, whatever her basis is in the stocks -- what they originally cost her, not their value now or at the beginning of the year -- becomes your basis in the stocks. When you sell the stocks you will pay capital gains taxes on the difference between your basis and what you sell them for. If you don't hold them youself for over one year, that gain will be taxed as ordinary income. If you do hold it longer than one year then it will be taxed at the lower long-term CG rate which is normally 15%. If your marginal rate is already 15% or less then the rate drops to 5%. Since you seem to be interested in cashing this out quickly, you will pay at your marginal rate since you won't have held them for the requisite one year and one day.

It would be far better for both your grandmother and yourself if she left you the shares in her will. That way you'd get the stepped up basis as of her date of death AND you would treat any gain beyond that as long term regardless of how long you held them. That would also protect her assets and income while she was alive since giving them to you now will do nothing for her financially.

Another option would be for her to put them in a revocable trust with you as beneficiary upon her death. This would simplify the transfer to you upon her death while providing her income from the stocks while she is alive.

Consult with a qualified estate planner before taking any action. Actually, you grandmother needs to do that -- and you should NOT be in the room at the time, either! SHE needs to work out what is best for HERSELF first and a consultation without outside influence will assure that.