Ask the expert: Financial gifts for children
November 30, 2010
Q: I own a portfolio of stocks, and I was thinking of giving each of my children some shares of stock for the holidays. What do you think of this idea?
A: You can give each of your children up to $13,000 a year without tax consequences. Your spouse can give up to the same amount, so you can effectively double that amount if you are so inclined.
A big question is what form should the gift take if you want to give money to your children. Certainly, giving them shares of stock is an option, and getting children involved with securities can be an excellent teaching opportunity.
However, you can't properly diversify a portfolio of individual stocks with $13,000, so from an investment standpoint, giving individual stocks may not be the most prudent course. Think about finding a good mutual fund instead -- one with no sales load, reasonable management fees, and ideally one with asset allocation discretion so your children's investments can be fully diversified.
That brings up another question, which concerns your vision for how your children should use this money. If it is for education, you might consider setting up a Qualified Tuition Plan, such as a 529 plan. This will limit you to investing in 529 programs available in your state, and will probably by less empowering to the recipient, simply because the use of the money is already pre-determined. Even so, this does earmark the money for a purpose that will benefit your children in the long run. Contributions to 529 plans are not limited to the $13,000 ceiling on gifts, but they cannot exceed the amount required for your child's higher education expenses.
If the purpose of your gift is education, keep in mind that this will entail a relatively short time horizon as your child gets older, and so you should adjust the aggressiveness of your investment choices accordingly.
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