In a recent Fortune article, which in turn referenced an older ThinkAdvisor interview, Mary Buffett shared an anecdote about how her former father-in-law Warren Buffett changed the way he gifted his family $10,000 every year, from cash to shares of stock:
He would always give each of us $10,000 in hundred-dollar bills. As soon as we got home, we’d spend it — whooo! Then, one Christmas there was an envelope with a letter from him. Instead of cash, he’d given us $10,000 worth of shares in a company he’d recently bought, a trust Coca-Cola had. He said to either cash them in or keep them. I thought, “Well, [this stock] is worth more than $10,000. So I kept it, and it kept going up. Then, every year when he’d give us stock — Wells Fargo being one of them — I would just buy more of it because I knew it was going to go up.
Giving shares of stock instead of cash was small nudge that made a difference. A little bit of added friction. A little hint from the giver that you might want to keep it, but you aren’t forced to keep it.
I haven’t given my children any stock yet, but am starting to think they are ready. It won’t be a lot, but I’ll tell them about it and they can look at the custodial account statements each year. I’ll show them what paper stock certificates look like. I’m hoping that they’ll also see the growth from the investment, and then that’ll make them even less likely to sell the shares. But they’ll technically be free to sell them once they turn 18 (or up to 25 in some states).
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Great idea for your kids. Any recommendations for a custodial account? I’m interested in doing the same for my kids.
I will most likely use Fidelity, since I already have accounts there.
Good idea…my kids are 8 and 11 and I want to teach them about investing. I remember as a kid, my dad opened a custodial account at a mutual fund for me and showed me the growth. That’s how I go interested in investing. I’ve been meaning to do something similar but part of me wonders if it might affect financial aid in the future. Though I don’t think we will qualify for aid anyway. Did you ever write any post related to financial aid/custodial accounts? Thanks!
I do think they’ll get counted as assets, but I also don’t think we’ll qualify for financial aid.
If it were me, I’d forget about individual stock gifts only and divide the gift in shares in an S&P 500 fund and maybe BRKB Perhaps a 509 college plan? Or both.
I agree, BRKB is attractive since there will be no dividends (at least for a while) and thus hopefully less paperwork. But VOO/VTI would be preferred otherwise.
It’s a great idea to give the gift that keeps on giving, aka the gift of stock.
I opened a custodial account for the kids when they were born, and added a little over time. I do plan to ensure their dividend income is below the kiddie tax thresholds.
Basically, the first $1,350/year are not subject to tax, the next $1,350/year are taxed at childs tax rate, and anything above $2,700 in 2025 is taxed at parents tax rate..
So if your child receives less than $1,350 in unearned income, then you don’t have to file anything extra at all? I just want to avoid extra hassle as well as extra taxes. If that is the case, I might actually prefer a dividend-paying ETF, just for educational purposes.
I do not believe the child needs to file if they have less than 1350 in say qualified dividends
But if there is any active work, and/or the amounts increase, then probably you may have to have them file either separate return or report them onto yours
Not tax advice 😉
I’d say the annual dividend income can grow pretty quickly w/ new contributions and compounding. So it makes sense to keep it less than certain amounts through the period kids are subject to the gift tax, which is first two decades of their life almost
https://turbotax.intuit.com/tax-tips/family/tax-filing-requirements-for-children/L8ice6z0K