How to Transfer Company Stock to a Custodial Account (UTMA) for Your Child

A Strategic Guide to Gifting Employer Stock While Managing Taxes and Control

If you've accumulated company stock through an employee stock purchase plan (ESPP), restricted stock units (RSUs), or stock options, you may be wondering whether transferring some of those shares to your child could be a smart financial move.

Perhaps you're thinking about college funding, teaching your child about investing, or simply diversifying a concentrated position. Transferring stock to a custodial account under the

Uniform Transfers to Minors Act (UTMA) can accomplish these goals, but it comes with specific tax implications, legal considerations, and strategic trade-offs you'll want to understand before moving forward.

This guide will walk you through how the transfer process works, what it means for taxes, and when it makes sense as part of your broader financial plan.

What Is a UTMA Custodial Account?

A UTMA account is a type of custodial account that allows you to transfer assets including stocks, bonds, real estate, and other property to a minor child while maintaining control as the custodian until the child reaches the age of majority (typically 18 to 25, depending on your state).

Key features of UTMA accounts:

The assets legally belong to the child, not the parent. Once transferred, the gift is irrevocable.

As custodian, you manage the account on behalf of the child until they reach the age specified by your state's UTMA law.

The assets must be used for the benefit of the child, though "benefit" is broadly defined and can include education, extracurricular activities, or general support.

When the child reaches the age of majority, they gain full control of the account and can use the funds however they wish.

UTMA accounts offer flexibility that 529 plans and other education-specific accounts don't, but that flexibility comes with less control in the long run.

Why Transfer Company Stock to a UTMA?

There are several reasons parents and grandparents consider transferring employer stock to a child's custodial account:

Tax planning. Shifting income-producing assets to a child in a lower tax bracket can reduce the overall family tax burden, within limits.

College funding. Stock transferred to a UTMA can be sold to pay for education expenses, though this strategy has financial aid implications.

Reducing concentration risk. If a large portion of your net worth is tied up in employer stock, gifting shares to your child can help diversify your personal holdings.

Teaching financial literacy. Giving your child ownership of real assets can be a powerful tool for teaching investing, responsibility, and long-term thinking.

Estate planning. Transferring assets out of your estate during your lifetime can reduce potential estate tax exposure, though this is typically more relevant for high-net-worth families.

However, these benefits must be weighed against potential downsides, which we'll discuss later.

How to Transfer Company Stock to a UTMA: Step-by-Step

The process of transferring company stock to a custodial account involves several steps and requires coordination between you, your brokerage, and potentially your employer's stock plan administrator.

Step 1: Open a UTMA Custodial Account

If you don't already have a custodial account for your child, you'll need to open one. Most major brokerage firms (Fidelity, Vanguard, Charles Schwab, E*TRADE, etc.) offer UTMA accounts.

You'll need:

• Your child's Social Security number

• Your identification as the custodian

• The child's date of birth

The account will be titled something like: "Your Name, as custodian for Child's Name under

the State UTMA."

Step 2: Verify Transfer Eligibility and Restrictions

Before initiating a transfer, check with your employer's stock plan administrator or your brokerage to confirm:

• Whether your company stock is transferable (some restricted stock or unvested RSUs cannot be transferred)

• Any blackout periods or trading windows that apply

• Whether there are holding period requirements you must satisfy first

• Any internal company policies regarding stock transfers

If your shares are subject to vesting schedules, transfer restrictions, or are part of an ESPP with specific holding requirements, you may need to wait or adjust your strategy.

Step 3: Determine the Number of Shares to Transfer

Consider how much you want to gift based on:

Gift tax limits. In 2024 and 2025, you can gift up to $18,000 per person per year without filing a gift tax return (this is the annual gift tax exclusion). If you're married, you and your spouse can collectively gift $36,000 per child per year.

Impact on financial aid. Remember that assets in a child's name are assessed at 20% on the FAFSA, compared to 5.64% for parent assets. Large transfers could significantly reduce aid eligibility.

Your overall financial plan. Don't over-gift to the point where you jeopardize your own retirement security or liquidity needs.

Step 4: Initiate the Transfer

The mechanics of the transfer will depend on where your company stock is currently held:

If held in a brokerage account: Contact your brokerage and request a transfer of shares to the UTMA account. This is often done via a simple internal transfer form if both accounts are at the same institution. If the accounts are at different firms, you may need to complete an ACAT (Automated Customer Account Transfer) or similar process.

If held in an employer stock plan account: You may need to first transfer shares from your employer's plan to your personal brokerage account, then transfer from there to the UTMA. Some employer plans allow direct transfers to custodial accounts, check with your plan administrator.

You'll typically need to specify:

• The number of shares to transfer

• The receiving UTMA account information

• The child's name and Social Security number

• Your signature and authorization

Step 5: Understand the Tax Implications at Transfer

When you transfer stock to a UTMA, it's considered a completed gift for tax purposes. Here's what that means:

Your cost basis transfers to the child. The child inherits your original cost basis in the stock, not the fair market value at the time of transfer. This is important for calculating capital gains later.

The gift is valued at fair market value. For gift tax purposes, the IRS values the gift at the stock's fair market value on the date of transfer. If this exceeds $18,000 ($36,000 for married couples), you'll need to file a gift tax return (Form 709), though you likely won't owe tax unless you've exceeded your lifetime gift and estate tax exemption (currently over $13 million per person).

No immediate income tax. The transfer itself doesn't trigger income tax for you or the child, it's simply a change of ownership.

Step 6: Manage the Account and Plan for Future Taxes

Once the stock is in the UTMA, you'll manage it as custodian. You can hold the shares, sell them, or reinvest in other assets.

Be aware of the "kiddie tax" rules:

• A child's unearned income (such as dividends, interest, or capital gains) above a certain threshold (approximately $2,500 in 2024-2025) is taxed at the parent's marginal tax rate, not the child's lower rate.

• This limits the tax benefit of transferring income-producing assets to children under age 18 (or under 24 if a full-time student and financially dependent).

If you sell the stock while your child is still subject to kiddie tax, the capital gain may be taxed at your higher rate, reducing the tax advantage of the transfer.

Key Tax Considerations and Strategies

Timing the Sale

If you're planning to sell the stock, consider waiting until your child is no longer subject to kiddie tax (generally age 18, or 24 if they're a full-time student and you provide more than half their support). At that point, gains may be taxed at the child's lower rate (potentially 0% if their income is low enough).

Dividends and Income

If the stock pays dividends, those dividends will be reported under the child's Social Security number. The first portion of unearned income may be tax-free or taxed at the child's rate, but amounts above the threshold will be subject to kiddie tax.

Gift Tax Reporting

Even if you don't owe gift tax, you're required to file Form 709 if your gift exceeds the annual exclusion amount. Keep good records of the date of transfer, number of shares, and fair market value.

Capital Gains Planning

If the stock has appreciated significantly and you transfer it to your child, the child will owe capital gains tax when they eventually sell. Depending on their income level, they may qualify for the 0% long-term capital gains rate, which can be a significant advantage.

When Does Transferring Stock to a UTMA Make Sense?

This strategy works best when:

You have concentrated company stock positions. Gifting shares reduces your concentration risk and shifts future appreciation to your child's name.

Your child is old enough to benefit soon but young enough to avoid immediate kiddie tax concerns. For example, a teenager who will use the funds for college in a few years.

You're comfortable with irrevocable gifting. Once transferred, you cannot reclaim the assets, even if your financial situation changes.

You've maxed out other tax-advantaged savings. If you're already contributing the maximum to 529 plans, retirement accounts, and other vehicles, a UTMA transfer might make sense as an additional strategy.

You're in a high tax bracket and your child has little to no income. The tax arbitrage can be meaningful, though kiddie tax limits this advantage.

When It May Not Make Sense

Transferring stock to a UTMA might not be ideal if:

You need the funds for your own retirement or liquidity. Don't prioritize gifting over your own financial security.

Your child will soon apply for financial aid. Assets in the child's name significantly reduce aid eligibility.

You're unsure about your child's financial maturity. Remember, they'll gain full control at the age of majority, and there's no requirement that they use the funds for education or other "approved" purposes.

The stock is highly appreciated and you'd prefer a step-up in basis. If you hold the stock until death, your heirs receive a step-up in cost basis to fair market value, eliminating embedded capital gains. Gifting during life transfers your lower basis.

Alternatives to Consider

If a UTMA transfer doesn't feel like the right fit, consider these alternatives:

529 College Savings Plan. You retain control, funds are used specifically for education, and there's no impact from kiddie tax. However, non-education withdrawals incur penalties.

Roth IRA for your child. If your child has earned income, you can gift them money to fund a Roth IRA, which grows tax-free and offers more flexibility than a UTMA.

Keep the stock in your name and gift cash as needed. This preserves your control and flexibility while still supporting your child financially.

Use a trust. For more control and specific conditions on distributions, a trust (such as a 2503(c) minor's trust) may be more appropriate, though it's more complex and costly to establish.

Final Thoughts

Transferring company stock to a UTMA custodial account can be a powerful strategy for reducing concentration risk, teaching financial responsibility, and potentially lowering your family's overall tax burden. But it's not a one-size-fits-all solution.

Before moving forward, carefully consider the tax implications, the impact on financial aid, your comfort with irrevocable gifting, and how this strategy fits into your broader financial plan.

At Life Story Financial, we help families navigate these decisions with clarity and confidence, ensuring that every financial move aligns with your values and long-term goals.

Frequently Asked Questions

Can I transfer unvested RSUs to a UTMA?

Generally, no. Unvested RSUs typically cannot be transferred because you don't yet own them. You must wait until they vest.

What happens to the UTMA when my child turns 18 (or 21)?

Your child gains full legal control of the account and can use the funds however they wish. You no longer have authority over the assets.

Can I change the beneficiary of a UTMA account?

No. UTMA accounts are irrevocable. Once assets are transferred to your child, they belong to your child.

How does transferring stock to a UTMA affect my child's financial aid?

Student-owned assets (including UTMA accounts) are assessed at 20% on the FAFSA, significantly reducing aid eligibility compared to parent-owned assets.

Can grandparents transfer stock to a UTMA for their grandchild?

Yes. Grandparents can open and fund UTMA accounts for grandchildren, subject to the same gift tax rules and considerations.