He Can Give Shares of Stock to a Grandchild’s Custodial Account Without Selling Them, and the Gain Moves With the Gift

Grandparents who own appreciated stock can transfer shares to a grandchild without selling them first. If you own appreciated stock, you can give shares of stock to a grandchild’s custodial account without selling them.

You don’t trigger any capital gains tax when you make the gift. Your original cost and the gain that has built up move to the child along with the shares.

How a Custodial Account Holds Gifted Shares

A custodial account is a brokerage account opened under your state’s Uniform Transfers to Minors Act (UTMA) or the older Uniform Gifts to Minors Act (UGMA). The child legally owns everything in it. An adult, called the custodian, handles the account until the child reaches the state’s age of transfer. After that, it’s theirs.

That age varies by state. Social Security Administration guidance shows Texas uses age 21 for UTMA transfers made by gift, while Louisiana uses 18. Shares can move between accounts “in kind” at most brokerages, which means the actual shares transfer and nothing gets sold first.

Tax Code Rule That Moves the Gain

The rule is 26 U.S.C. § 1015(a). When someone gets property as a gift, its basis “shall be the same as it would be in the hands of the donor.” Basis is simply what you paid, and it’s the number used later to figure the gain. Your grandchild takes over that number.

Under 26 U.S.C. § 1223(2), the child also gets credit for the time you owned the shares. IRS Publication 550 says the recipient’s holding period starts on the same day the donor’s holding period started. So shares you’ve held for decades count as long-term holdings from the child’s first day.

One exception applies: if the shares are worth less than you paid on the day of the gift, the child has to use that lower market value when figuring a loss, under the same section. That means some of your loss disappears when you give away a losing stock.

Who Comes Out Ahead and Who Should Skip It

This works best for people with long-held, highly appreciated stock who want to help a minor grandchild and won’t need the money back. It’s a poor fit if you want to keep control of the money. It’s also a poor fit if the grandchild will sell soon and run into the kiddie tax.

Steps to Move the Shares in 2026

1. Make sure a UTMA or UGMA account exists in your grandchild’s name. If it doesn’t, a parent or another adult can open one and serve as custodian.
2. Ask your brokerage for its in-kind transfer form and list the exact shares you’re giving.
3. Value the gift on the transfer date. For 2026, the annual gift exclusion is $19,000 per recipient. It rises to $20,000 in 2027.
4. Give the custodian your purchase records so they have your cost and purchase date.
5. If your total gifts to that grandchild exceed the annual exclusion, you’ll generally need to file Form 709. Filing rarely means you owe tax, since the 2026 lifetime gift and estate tax exclusion is $15 million. Gifts to grandchildren can also trigger generation-skipping transfer tax rules, which carry their own exemption and reporting requirements.

Kiddie Tax, Lost Control and Financial Aid Traps

When the child sells, the child reports the gain. But the kiddie tax can tax it at the parents’ rate. Under 26 U.S.C. § 1(g)(2), the kiddie tax covers children under 18. It also covers 18-year-olds, and full-time students who are at least 19 but under 24, if their earned income doesn’t cover more than half of their own support. IRS instructions for 2025 returns apply it to children with more than $2,700 of unearned income, and that includes capital gains.

Once you make the gift, you can’t take it back. Your grandchild gets full control at the transfer age and can spend the money however they like. College aid is another issue. Custodial accounts are considered student assets on the federal aid form, and student assets reduce eligibility for need-based financial aid much more than parent assets do.

A grandparent-owned 529 is one alternative. Starting with the 2024 to 2025 award year, money paid out of one no longer counts as student income on the federal application.

Give Now or Let Them Pass at Death

Shares inherited at death get a new basis equal to their fair market value at the date of the decedent’s death under 26 U.S.C. § 1014(a)(1). That wipes out the gain built up during your lifetime. Gifted shares keep the gain.

Stock is one of the most common assets in estates: publicly traded stock showed up on 5934 of the 7195 estate tax returns filed in 2024, according to IRS Statistics of Income data.

Before moving any shares, consider whether your grandchild is better off getting these shares now, gain and all, or later with a new basis. If the gain is large and your estate is well below the $15,000,000 exclusion, waiting may save the family more tax (we put the full wealth-transfer checklist, beneficiary forms and titling included, in a free report).

If the gain is small, or the money is needed for something now, giving the shares today gets them working sooner.

Contact [email protected] for any questions or corrections.