How to Buy a Child Shares in a Company
Most children dream of toys and candy; the last thing they're hoping for is a share of stock. However, from a financial perspective, this is one of the best things a parent or guardian can buy for a child. It can be used for everything from a new car to health expenses, and, most important, education. It can also help to teach children about stock ownership at an early age. The challenge is finding the best way to do it.
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Instructions
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Contact your broker. Request a transfer of your current shares to the child's name. Your broker will advise you of the paperwork that must be signed to make this transaction legal.
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Contact a stock certificate gifting service. These allow you to buy one share at a time. Oneshare.com allows you to actually hold the certificate for framing, which might be more fun for a child as it presents a tangible record of ownership. The cost of purchasing a stock in this manner might outweigh the benefits of owning the stock, however.
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Open a "minor's account" for your child at a discount brokerage. Numerous discount brokers online charge low commissions and have no minimum balance requirement. This will also allow you to teach your child how to access the account and trade the stock if so desired. Most brokerage accounts require a parent or guardian on a minor's account, so be prepared for lots of paperwork.
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Review legal requirements. In most states a child is legally an adult at age 18; therefore, a guardian must be appointed before stock can be purchased in the child's name. No formal legal process is required to establish guardianship for the purpose of stock ownership. The named guardian is the only one who can sell the security. A substitute guardian must be named in the event of death of the guardian.
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Understand tax laws. These vary by state, so contact your accountant to understand the appropriate tax procedure. However, in general, any income that comes to a child under 14 will be taxed in the same tax bracket as the guardian.
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Tips & Warnings
In the event of the death of the guardian before the child reaches age 18, a substitute guardian must be named. The question often arises whether the security can be sold to pay for the child's education. As a general rule, courts have allowed the sale of securities to pay for educational needs of the child. A child must have a Social Security number to own stock.
