Transferring shares to a loved one or another person is simple and easy. In addition, so long as your transfer doesn't exceed a certain amount, it won't cost you any money in taxes. Transferring shares to family members or other party during your lifetime is a good way to reduce your assets for estate planning purposes. A smaller estate means that your estate pays less taxes. Your heirs also benefit by receiving the shares sooner.
A stock registry agent is an entity that handles the administrative duties of keeping tabs when shares change hands for a particular company. To transfer shares, you'll have to use a Stock Transfer Form. Print a copy of the form by visiting the agent's website. Fill out the form by including the name, address and other relevant information about the recipient. Specify the number of shares you wish to transfer. It's important for you to endorse the Stock Transfer Form exactly as the shares are registered, which you'll find on the stock certificate. You'll also have to get a Medallion-guarantee from an approved financial institution such as a commercial bank or trust. Mail the Stock Transfer Form along with the stock certificates to the agent.
A transfer of stock to another person can potentially create a taxable event subject to the "gift tax." It depends on the value of the stock at the time you make the transfer. As of the time of publication, the IRS allowed you to give up to $13,000 per year in the form of cash, stock or other assets without having to file a gift-tax return. If you're married, you can use "gift splitting" to give up to $26,000 every year without having to pay the gift tax. If you're transferring stock for estate-planning purposes, you get out of paying the gift tax of 35 percent if your estate is worth less than $5.12 million.
If the new owner of the shares decides to sell them after the shares go up in value, then her cost basis is the original cost of the shares to you. She pays taxes on the difference of your cost basis and the sum she received for the shares. If the fair market value of the gift at the time of the transfer is less than your cost basis, the new owner's cost basis depends on whether she sold the shares for a gain or loss. If she makes money on the sale of stock, her cost basis is the original cost to you. If she sells the shares at a loss, the cost basis is the fair market value at the time of the transfer.
Suppose you owned 1,000 shares of ABC Company that you bought for $10 per share. This means your cost basis is $10,000. If the stocks go up in value to $20,000, the cost basis for the new owner is $10,000 if she sells the stock. If she sells the shares for $20,000, she must pay capital gains tax on the $10,000 ($20,000 - $10,000). If the shares fall to $5,000 at the time of the transfer and the new owner sells the shares for $15,000, her cost basis is $10,000. In this case, she pays capital gains tax on $5,000 ($15,000 - $10,000). If the shares declined in value at the time of the transfer to $5,000 and the new owner sells the shares for $4,000, her cost basis is $5,000, meaning she realizes a loss of $1,000.
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