Stock Gift

Individuals can make an unlimited number of stock gifts each up to the annual exclusion amount tax-free (present interest gifts) and do not need to report those gifts to the Internal Revenue Service (IRS). However, good records substantiating the value of this gift of stock are critical in case of an audit. Stock gifts over the annual exclusion amount must be reported on an individual Form 709 gift-tax return which is filed with the income-tax return. Separate from these annual gifts, each individual can give away up to $1 million free of gift tax during a lifetime. Stock gifts made above the federal annual maximum can be applied to this lifetime exemption each year. A valuation is also important for documenting the value of these lifetime exemptions as well as for managing estate settlement issues.

While giving stock as a gift is relatively easy given its ease of transferability, it can be difficult to document its fair market value as of the date of transfer, particularly of closely-held firms. Regardless of whether gift tax is due or not, it is important to retain documentation that is acceptable to the IRS regarding the gift stocks' appraised value to avoid future tax penalties.

From a family planning perspective, the assets of privately held companies, that can include common stock and real estate, are commonly held in Family Limited Partnerships (FLPs). This gift of stock can also be granted via minority interests in the FLPs. From a valuation perspective, the issue in gifting stock in this manner is that the fair market value of the interest granted must be documented. Since minority interest valuations should always include a consideration for discounts (discounts for lack of control and marketability), a valuation expert is frequently engaged to provide this qualified third-party opinion. AccuVal has extensive experience in understanding the structure of these partnerships and the key valuation issues surrounding them, and our work has been tested and has passed IRS scrutiny.

Gifting stock can be a key component of your strategy to maximize the wealth you are able to pass on to your family. Documenting these transactions with independent fair market valuations can give you confidence that you are reporting all stock gifts appropriately and are not exposing yourself or your family to future tax liabilities.