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How To Transfer Shares To Your Kids

How To Transfer Shares to Children

For the longest time, I have been an income focused investor. I remember when I started working, I did not have much money to invest and I invested in mutual funds telling myself “if I can have more to invest one day, I would buy stocks” (at the time, trading was usually $30 – no $6.99 options back then). It turns out that you don’t need a lot of money and you don’t have to pay any fees!!! It was quite marvelous when I learned about buying shares with Computershare or Canadian Stock Transfer directly from the companies. It’s something I learned from The Lazy Investor by Derek Foster – strongly recommended if you are a beginner dividend investor.

Investing with the transfer agents was my doorway to getting my children started. It’s simple, you can invest small amounts and there are no fees. What better way than to teach the power of compound growth to your kids. The one asset they have that we, adults, run out of is time. They have all the time on their side and if they can understand what time can do to their investments, they are off to a good start. They will think about saving rather than trying to live a life of consumption. You can even invite them to invest their allowance if you provide them with one.

There are basically 2 ways to transfer shares to your children. My friend did it one way and I did it the other way. Both worked just fine.

Transfer The Shares Yourself

Once you are setup with a transfer agent, transferring shares to others can be done by filling the appropriate forms. My recommendation is to call Computershare or Canadian Stock Transfer (CST) to really understand all the forms the companies you are transferring shares from require you to fill. In my case, it was the same form I needed to fill for each companies I transfered (Telus, Bank of Montreal and Fortis). The agent also recommended I write instructions on the share transfer just to be clear on what I wanted to happen and I strongly recommend you do so.

Once you have the forms, you need a signature guarantee. That’s actually quite challenging it turns out. You can’t just walk into any branch and ask for a signature guarantee. For example, Royal Bank doesn’t do them anymore for legal reasons (I was told at one of their branches). It turns out that my account manager at my ScotiaBank branch does do them so my hunt came to an end.

To my surprise, it turned out that Computershare has an office in the same building as my branch downtown and I simply had to walk up to deliver the forms. That was quite a bonus. With the forms delivered, all I needed to do was to wait to receive the first share certificate for my children. I opted to do them “In Trust” as I can still control the proceedings as they are still young.

Use The Forums To Have Shares Transferred

Just like you would have shares ransfered in your name using the forum at “The DRIP Investing Resource Center“, you can have them transfered in your children’s name. The principle for your children is the same as for yourself. The only difference is that you have to decide between “in trust” or in their name.

In retrospective, it would have been easier to use the forums to get my kids started but now that I know what to do, either way is fine but I have heard of some people having difficulties getting a signature guarantee. If you aren’t sure you can get one, just go the forum route. It’s simple and someone else does the work :)

Readers: Are you interested in getting your children setup with DRIP at an early age?

Image: Grant Cochrane / FreeDigitalPhotos.net

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12 Responses to "How To Transfer Shares To Your Kids"

  1. Jesica Hu says:

    I didn’t know how to transfer shares to someone else.Thanks for advice.

  2. I always had a difficult time when I transfer shares. I think I’d rather just open a new account for the kid and buy some shares when I have some extra cash.

  3. Its really a great article. I think its very useful and helpful for kids. Thanks for sharing.

  4. Don says:

    In Canada, this transfer will trigger the “attribution rules”, meaning that the parent willstill need to report and pay tax on the dividends received on the shares — assuming we’re talking about a minor child. The capital gain or loss may be OK, though one needs to check the last federal budget. Bottom line is: get tax advice first

    In US,there may be gift tax issues, though smaller gifts fall inside an exemption, at least for cash, I understand. Tax advice is needed there, too.

    • The Passive Income Earner says:

      @Don

      Thanks for pointing out the tax aspect. You are right that there are still taxes to take care of and it may complicate taxes for the parents but it should not prevent it from getting your kids started.

  5. That’s great Computershare has an office downtown. This post will come in handy once I have kids some day.

    • The Passive Income Earner says:

      @Liquid
      Definitely keep that in mind but don’t forget to have communication around it :) otherwise it can be seen as just handing out money …

  6. Pretty great post. I simply stumbled upon your blog and wanted to say that I have really loved surfing around your blog posts. In any case I’ll be subscribing to your feed and I’m hoping you write once more soon!

  7. American readers need to understand that gift to children need to be reported on a Form 709 if the amount in any year is $14,000 (the annual donee exclusion for 2013, which is adjusted for inflation).
    Secondly, giving gifts to children either outright or via a Uniform Gift to Minors statute may not be the right thing to do. In some cases a creation of a trust for their benefit is better way to go and allows the maker of the trust to put better controls over such assets and the child beneficiary. This is part of estate planning and getting with an experienced estates attorney would be a good thing to get wills, trusts, durable powers of attorney, living wills in place.

  8. David says:

    I live in canada

    If the shares are in the kids name and not in trust for the kids would the parents still need to pay tax on the dividend?

    • @David

      It depends on their age … As adults they will pay taxes but you need to validate with a tax accountant as it can depends on where the money comes from. As kids, it’s usually your money so you have to declare the income. If you have a more complicated situation where the kids actually earn money and you them to pay taxes, you should talk to an accountant about it.

      The rule of thumb is that any money you give for investing is taxed in your name unless you are making donations … Even the money you would give to your spouse. Just keep that in mind.

      For more details, I would ask a tax accountant as you often need paperwork to prove things.

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