how to transfer a large cash gift to a non-relative?

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djm2001
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how to transfer a large cash gift to a non-relative?

Post by djm2001 »

Suppose one wanted to give a no-strings-attached large cash gift (say $150k) to an extremely trusted friend in need. What is the best way to transfer the money over to them? Just cut them a check for $150k? Do a wire transfer? Open a joint bank account? Also, what are the negatives / risks for either party with each method (e.g., raising red flags with the IRS)?

Assume the gift giver duly files a gift tax return (form 709) to report the gift as part of their lifetime gift tax exemption.
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Re: how to transfer a large cash gift to a non-relative?

Post by Gill »

Send it however you like assuming you plan to give cash instead of securities or other assets. IRS has no interest as long as you file a gift tax return.
Gill
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djm2001
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

Gill wrote: Sat Oct 23, 2021 5:44 am Send it however you like assuming you plan to give cash instead of securities or other assets. IRS has no interest as long as you file a gift tax return.
Gill
What are the gotchas w.r.t. gifting securities that you were concerned about? I'm familiar with the slightly weird cost-basis handling of gifted securities. Any risks beyond that (and the fact that, once gifted, the amount will fluctuate with stock price)?
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Re: how to transfer a large cash gift to a non-relative?

Post by demdeah26 »

I don’t know the technical details but there are financial services firms (like a RayJ or UBS) that can help you approach it as a loan….which you end up paying back/funding from another account
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Re: how to transfer a large cash gift to a non-relative?

Post by Gill »

djm2001 wrote: Sat Oct 23, 2021 5:51 am
Gill wrote: Sat Oct 23, 2021 5:44 am Send it however you like assuming you plan to give cash instead of securities or other assets. IRS has no interest as long as you file a gift tax return.
Gill
What are the gotchas w.r.t. gifting securities that you were concerned about? I'm familiar with the slightly weird cost-basis handling of gifted securities. Any risks beyond that (and the fact that, once gifted, the amount will fluctuate with stock price)?
No problem giving securities either. It might be beneficial to you rather than selling securities to make a cash gift, particularly if the donee is in a low tax bracket.
Gill
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Re: how to transfer a large cash gift to a non-relative?

Post by lurker415 »

You could give them a loan with a nominal interest rate equal to the AFR (https://apps.irs.gov/app/picklist/list/ ... Rates.html), and then forgive a portion of the principal and interest each year that is equal to the gift tax exclusion amount.
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Re: how to transfer a large cash gift to a non-relative?

Post by JoMoney »

Do they need it all at once? There may be better tax treatment if spread over time. Hate to pry, but what is the money expected to be used for? There may be a better way tax wise to structure the money to go towards whatever needs to be purchased... there's also an issue that some people might not manage a sudden windfall of cash well (you don't want to enable an addict)
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Re: how to transfer a large cash gift to a non-relative?

Post by inverter »

Gosh the Bogleheads really know how to overcomplicate something! Cut them a check.
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Re: how to transfer a large cash gift to a non-relative?

Post by cchrissyy »

a paper check or a wire are both fine
no reason for the complications of a shared bank account
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Re: how to transfer a large cash gift to a non-relative?

Post by Dottie57 »

inverter wrote: Sun Oct 24, 2021 8:04 pm Gosh the Bogleheads really know how to overcomplicate something! Cut them a check.
This.
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Re: how to transfer a large cash gift to a non-relative?

Post by Steelersfan »

Dottie57 wrote: Sun Oct 24, 2021 8:17 pm
inverter wrote: Sun Oct 24, 2021 8:04 pm Gosh the Bogleheads really know how to overcomplicate something! Cut them a check.
This.
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Re: how to transfer a large cash gift to a non-relative?

Post by RetiredAL »

djm2001 wrote: Sat Oct 23, 2021 5:35 am What is the best way to transfer the money over to them? Just cut them a check for $150k? Do a wire transfer?
A few month's ago, I needed to transfer $60K to my sister. The thought of a check that size in the mail with all the mail delivery issues did not rest well with me.

We both use the same bank, so I got her Saving Account number, went to my local branch, wrote a check that the teller immediately deposited to her account. The teller did validate her name and address so we knew we had the correct account number.
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Re: how to transfer a large cash gift to a non-relative?

Post by delamer »

djm2001 wrote: Sat Oct 23, 2021 5:51 am
Gill wrote: Sat Oct 23, 2021 5:44 am Send it however you like assuming you plan to give cash instead of securities or other assets. IRS has no interest as long as you file a gift tax return.
Gill
What are the gotchas w.r.t. gifting securities that you were concerned about? I'm familiar with the slightly weird cost-basis handling of gifted securities. Any risks beyond that (and the fact that, once gifted, the amount will fluctuate with stock price)?
I’ve transferred shares of stock several times to my adult children.

I have a taxable account with Vanguard, as do each of the children.

I can do all the transferring online, without help from telephone support.

However, I’ve never transferred 6-figures so I don’t know if the amount would be an issue.

Not sure what you mean about the weird cost basis.
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djm2001
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

delamer wrote: Sun Oct 24, 2021 10:00 pm I have a taxable account with Vanguard, as do each of the children.

I can do all the transferring online, without help from telephone support.
This is really good to know, thanks! Posts from 2020 said that a phone call was needed, so I'm relieved to hear that the whole process is now online.
delamer wrote: Sun Oct 24, 2021 10:00 pm Not sure what you mean about the weird cost basis.
If the receiver sells the stock and the gift FMV price (as of the gift date) and the receiver's sell price were both lower than the donor's original cost basis, then the income tax treatment of the receiver's cost basis is surprising. Suppose I buy stock for $10, and give it to you when the price is $6. If you sell it for $4, then the gift price ($6) and date are used for cost basis and holding period. If you sell it for $8, no gain or loss is recognized. If you sell it for $11, my original cost basis ($10) and purchase date are used.
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djm2001
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

lurker415 wrote: Sun Oct 24, 2021 7:50 pm You could give them a loan with a nominal interest rate equal to the AFR (https://apps.irs.gov/app/picklist/list/ ... Rates.html), and then forgive a portion of the principal and interest each year that is equal to the gift tax exclusion amount.
In theory, could one could combine this loan forgiveness approach (which reduces gift tax) with gifting shares (which reduces donor's eventual income tax)? I.e., could the initial loan amount be transferred as shares?

That said, I have read several warnings that the IRS scrutinizes loan forgiveness very closely. (The other party being a non-relative may strengthen the case a bit though.) Plus there other wrinkles that I don't have a good handle on -- e.g., what happens if one of the two parties dies before the entire loan is forgiven?

So, practically speaking, the risk and complexity of this approach make me nervous. I don't want to risk creating a probate mess for my family to deal with after I die.
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

JoMoney wrote: Sun Oct 24, 2021 8:03 pm Do they need it all at once? There may be better tax treatment if spread over time. Hate to pry, but what is the money expected to be used for? There may be a better way tax wise to structure the money to go towards whatever needs to be purchased...
The money is to be used to pay off student loans and for a mortgage downpayment in the coming months, and then to cover partial living expenses over the next few years. For personal reasons, the total amount needs to be gifted in totality this year rather than spread out over multiple years.

I am aware of some issues surrounding gifts and mortgage downpayments, but didn't want to muddy this thread with those additional complexities. My understanding is that seasoning the gift for 2-3 months and giving an explicit gift letter should be enough for an FHA loan.
JoMoney wrote: Sun Oct 24, 2021 8:03 pm there's also an issue that some people might not manage a sudden windfall of cash well (you don't want to enable an addict)
I sincerely appreciate the thinking behind the question here. Let's assume here that the receiver is financially responsible, trustworthy, and mature. But rest assured that these other aspects are being weighed carefully -- for example, taking into consideration that gifting shares has the advantage that the receiver is disincentivized by tax if they sell beyond the 0% LTCG tax bracket (and making sure that the receiver understands this).
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Re: how to transfer a large cash gift to a non-relative?

Post by Watty »

djm2001 wrote: Mon Oct 25, 2021 7:44 am The money is to be used to pay off student loans and for a mortgage downpayment in the coming months, and then to cover partial living expenses over the next few years.
One consideration to be aware of is that for the mortgage down payment is that if they are married and they get divorced then spouse may get half of that home equity.

Probably not much you could do about that but you should be aware of that risk.
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Re: how to transfer a large cash gift to a non-relative?

Post by Exchme »

delamer wrote: Sun Oct 24, 2021 10:00 pm
djm2001 wrote: Sat Oct 23, 2021 5:51 am
Gill wrote: Sat Oct 23, 2021 5:44 am Send it however you like assuming you plan to give cash instead of securities or other assets. IRS has no interest as long as you file a gift tax return.
Gill
What are the gotchas w.r.t. gifting securities that you were concerned about? I'm familiar with the slightly weird cost-basis handling of gifted securities. Any risks beyond that (and the fact that, once gifted, the amount will fluctuate with stock price)?
I’ve transferred shares of stock several times to my adult children.

I have a taxable account with Vanguard, as do each of the children.

I can do all the transferring online, without help from telephone support.

However, I’ve never transferred 6-figures so I don’t know if the amount would be an issue.

Not sure what you mean about the weird cost basis.
This is a great idea to cut down capital gains taxes, particularly if the gifts are recurring. I don't see how to do it on-line at Vanguard with mutual funds or ETFs though? The "transact" option just has "buy" and "sell" as the choices. Anyone know the ins and outs of this?
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

Exchme wrote: Mon Oct 25, 2021 8:21 am This is a great idea to cut down capital gains taxes, particularly if the gifts are recurring. I don't see how to do it on-line at Vanguard with mutual funds or ETFs though? The "transact" option just has "buy" and "sell" as the choices. Anyone know the ins and outs of this?
I haven't completed the process but here's how I got to the start of the form:
  1. Navigate to My Account > Cost Basis.
  2. Click the "Gifted Shares" tab.
  3. Click the "Forms Overview" link on the right.
  4. Expand "Add or remove owners, inherit accounts, gift shares".
  5. Expand "Gift assets to an individual/organization (between existing Vanguard accounts or to accounts at other brokerage firms)".
  6. Click "Give Shares or Securities to an Individual or Organization" to start the form entry.
Here's the current direct link to the Forms Overview page. You'll have to search for "gift" if you jump there directly. If you aren't logged in, it will prompt you to do so once you choose the form you want.

Before you begin the process, you can set your cost basis method to "Spec ID" if you want more control over the capital gains savings.
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Re: how to transfer a large cash gift to a non-relative?

Post by Exchme »

djm2001 wrote: Mon Oct 25, 2021 8:45 am
Exchme wrote: Mon Oct 25, 2021 8:21 am This is a great idea to cut down capital gains taxes, particularly if the gifts are recurring. I don't see how to do it on-line at Vanguard with mutual funds or ETFs though? The "transact" option just has "buy" and "sell" as the choices. Anyone know the ins and outs of this?
I haven't completed the process but here's how I got to the start of the form:
  1. Navigate to My Account > Cost Basis.
  2. Click the "Gifted Shares" tab.
  3. Click the "Forms Overview" link on the right.
  4. Expand "Add or remove owners, inherit accounts, gift shares".
  5. Expand "Gift assets to an individual/organization (between existing Vanguard accounts or to accounts at other brokerage firms)".
  6. Click "Give Shares or Securities to an Individual or Organization" to start the form entry.
Here's the current direct link to the Forms Overview page. You'll have to search for "gift" if you jump there directly. If you aren't logged in, it will prompt you to do so once you choose the form you want.

Before you begin the process, you can set your cost basis method to "Spec ID" if you want more control over the capital gains savings.
Wow, thank you. This may be a great option, I want to give gifts, but don't enjoy the cash crunch it creates.
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Re: how to transfer a large cash gift to a non-relative?

Post by delamer »

djm2001 wrote: Mon Oct 25, 2021 8:45 am
Exchme wrote: Mon Oct 25, 2021 8:21 am This is a great idea to cut down capital gains taxes, particularly if the gifts are recurring. I don't see how to do it on-line at Vanguard with mutual funds or ETFs though? The "transact" option just has "buy" and "sell" as the choices. Anyone know the ins and outs of this?
I haven't completed the process but here's how I got to the start of the form:
  1. Navigate to My Account > Cost Basis.
  2. Click the "Gifted Shares" tab.
  3. Click the "Forms Overview" link on the right.
  4. Expand "Add or remove owners, inherit accounts, gift shares".
  5. Expand "Gift assets to an individual/organization (between existing Vanguard accounts or to accounts at other brokerage firms)".
  6. Click "Give Shares or Securities to an Individual or Organization" to start the form entry.
Here's the current direct link to the Forms Overview page. You'll have to search for "gift" if you jump there directly. If you aren't logged in, it will prompt you to do so once you choose the form you want.

Before you begin the process, you can set your cost basis method to "Spec ID" if you want more control over the capital gains savings.
Just a reminder that I was gifting shares from my Vanguard account to another person’s Vanguard account. I suspect it’s much harder if you are trying to gift to an account held at another custodian.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: how to transfer a large cash gift to a non-relative?

Post by NYCPete »

djm2001 wrote: Sat Oct 23, 2021 5:35 am Suppose one wanted to give a no-strings-attached large cash gift (say $150k) to an extremely trusted friend in need. What is the best way to transfer the money over to them? Just cut them a check for $150k? Do a wire transfer? Open a joint bank account? Also, what are the negatives / risks for either party with each method (e.g., raising red flags with the IRS)?

Assume the gift giver duly files a gift tax return (form 709) to report the gift as part of their lifetime gift tax exemption.
Re: gift tax return, if the trusted friend has a spouse, you could split it between the 2 of them to double the annual gift tax exemption. We're also pretty close to the end of the calendar year, so you could do part of the $150K transfer now, and part of it on January 1st, 2022. Putting part of the gift into 2022 could save you $15,000 (or $30,000 with a spouse) of your lifetime gift tax exemption. If you have a spouse, then you could avoid even more. If circumstances align, with a little bit of forethought, you could go from using up $135,000 of your lifetime exemption to only using $30,000 of your lifetime exemption.

There's no point in dipping into your lifetime gift tax exemption unnecessarily if you don't need to do so. Tax policies change, and the relatively high lifetime exemption may not be around in the future.

Best,
Peter
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Re: how to transfer a large cash gift to a non-relative?

Post by hvaclorax »

We gave money to son and daughter in law for new home purchase. In spite of leaving a clear paper trail I had to write a letter indicating this was a gift. Then another letter. Then a third one indicating the family relationship. They had to prove that they were indeed married, birth certificate and marriage license. Whew.
I’m thinking that some people might be using real estate to launder money?
HVAC
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Re: how to transfer a large cash gift to a non-relative?

Post by delamer »

hvaclorax wrote: Tue Oct 26, 2021 11:14 am We gave money to son and daughter in law for new home purchase. In spite of leaving a clear paper trail I had to write a letter indicating this was a gift. Then another letter. Then a third one indicating the family relationship. They had to prove that they were indeed married, birth certificate and marriage license. Whew.
I’m thinking that some people might be using real estate to launder money?
HVAC
Possibly.

But the lender wants to be sure that the money is truly a gift and not a loan. A loan would require repayment which would impact debt ratios and the ability to qualify for a mortgage.

The marriage certificate is a new requirement (to me) though.
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Re: how to transfer a large cash gift to a non-relative?

Post by 123 »

A wire transfer is best (if they trust you with their account information).

If you send them a check they could be inconvenienced by having to go inside a bank to deposit it. Many ATMs have a deposit/item limit of $99,999.99 but you could get around that with two checks (and two deposits) I suppose.
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Re: how to transfer a large cash gift to a non-relative?

Post by BrandonBogle »

123 wrote: Tue Oct 26, 2021 12:53 pm A wire transfer is best (if they trust you with their account information).

If you send them a check they could be inconvenienced by having to go inside a bank to deposit it. Many ATMs have a deposit/item limit of $99,999.99 but you could get around that with two checks (and two deposits) I suppose.
Interesting. I've deposited a $200k+ check at the ATM before without issue. But it is also one of those ATMs that instantly scan's the checks and my account is in good standing with the bank.

That all said, I'm not surprised some banks would put a limit on it, but isn't that why they can apply holds on deposits?!?
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djm2001
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

hvaclorax wrote: Tue Oct 26, 2021 11:14 am We gave money to son and daughter in law for new home purchase. In spite of leaving a clear paper trail I had to write a letter indicating this was a gift. Then another letter. Then a third one indicating the family relationship. They had to prove that they were indeed married, birth certificate and marriage license. Whew.
I’m thinking that some people might be using real estate to launder money?
HVAC
Do you recall if you gave the gift within 2 months of them applying for the mortgage? I was under the impression that seasoning the gift for 2-3 months often avoids the extra hoops.
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Re: how to transfer a large cash gift to a non-relative?

Post by Trader Joe »

djm2001 wrote: Sat Oct 23, 2021 5:35 am Suppose one wanted to give a no-strings-attached large cash gift (say $150k) to an extremely trusted friend in need. What is the best way to transfer the money over to them? Just cut them a check for $150k? Do a wire transfer? Open a joint bank account? Also, what are the negatives / risks for either party with each method (e.g., raising red flags with the IRS)?

Assume the gift giver duly files a gift tax return (form 709) to report the gift as part of their lifetime gift tax exemption.
Write a check.
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Re: how to transfer a large cash gift to a non-relative?

Post by hvaclorax »

Delamer,
we made it clear. We signed a letter indicating the gift. Still more was requested. Not saying the only reason for the extra documentation was because of illegal activities. I’m sure Uncle Sugar played a role here. Just surprised as same thing with daughter one year ago didn’t create such a fuss.
DMJ2001,
No it was probably one month maybe less not certain. Fortunately no blood test required.
HVAC
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

Just to follow up on what I ended up doing and what the experience was like... For both cashflow reasons and tax reasons (lower eventual cap gains for me, and tax incentive for the low-marginal-tax-rate recipient to spend it slowly), I decided to gift shares instead of cash. I used Vanguard's online form to gift shares of a Vanguard mutual fund (VFFVX). The process was a quick, painless, and totally online. The form allowes you to choose between either a dollar amount or a specific number of shares to gift. It required only the name and account number for the recipient's Vanguard brokerage account. I submitted the form on Thu, saw a "pending transfer" activity in my account on Friday, and the transaction settled (i.e., shares removed from my account and appeared in the receiver's account) on Saturday morning. The date and price recorded was the day the form was submitted online (Thu), keeping in mind that I made sure to submit the form well before 4pm (market close).

In terms of convenience and speed, the process was better than writing a check (which would have required depositing at the bank or ATM due to mobile check deposit limits). And it was free, so it was cheaper than doing a wire transfer.

As for gift tax optimization, I briefly considered the loan forgiveness approach to reduce the impact on my lifetime estate tax exemption, but ended up deciding not to tempt fate (or the IRS). So I'll just submit form 709 detailing the gift.
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Re: how to transfer a large cash gift to a non-relative?

Post by Gill »

Do you plan to furnish the donee with acquisition date and basis information for the shares transferred? They will need it at the time they sell.
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Re: how to transfer a large cash gift to a non-relative?

Post by delamer »

djm2001 wrote: Mon Oct 25, 2021 6:44 am
delamer wrote: Sun Oct 24, 2021 10:00 pm I have a taxable account with Vanguard, as do each of the children.

I can do all the transferring online, without help from telephone support.
This is really good to know, thanks! Posts from 2020 said that a phone call was needed, so I'm relieved to hear that the whole process is now online.
delamer wrote: Sun Oct 24, 2021 10:00 pm Not sure what you mean about the weird cost basis.
If the receiver sells the stock and the gift FMV price (as of the gift date) and the receiver's sell price were both lower than the donor's original cost basis, then the income tax treatment of the receiver's cost basis is surprising. Suppose I buy stock for $10, and give it to you when the price is $6. If you sell it for $4, then the gift price ($6) and date are used for cost basis and holding period. If you sell it for $8, no gain or loss is recognized. If you sell it for $11, my original cost basis ($10) and purchase date are used.
Interesting.

So if the gift price is less than the cost basis, then the rules are different than if the gift price is greater than/equal to the cost basis?
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Re: how to transfer a large cash gift to a non-relative?

Post by Gill »

delamer wrote: Sat Oct 30, 2021 1:45 pm
Interesting.

So if the gift price is less than the cost basis, then the rules are different than if the gift price is greater than/equal to the cost basis?
Correct. That is why it's rarely advisable to give assets held at a loss.
Gill
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Re: how to transfer a large cash gift to a non-relative?

Post by anon_investor »

BrandonBogle wrote: Tue Oct 26, 2021 1:54 pm
123 wrote: Tue Oct 26, 2021 12:53 pm A wire transfer is best (if they trust you with their account information).

If you send them a check they could be inconvenienced by having to go inside a bank to deposit it. Many ATMs have a deposit/item limit of $99,999.99 but you could get around that with two checks (and two deposits) I suppose.
Interesting. I've deposited a $200k+ check at the ATM before without issue. But it is also one of those ATMs that instantly scan's the checks and my account is in good standing with the bank.

That all said, I'm not surprised some banks would put a limit on it, but isn't that why they can apply holds on deposits?!?
$200k check at the ATM :shock: . I would have gone into the branch...
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Re: how to transfer a large cash gift to a non-relative?

Post by Luckywon »

anon_investor wrote: Sat Oct 30, 2021 6:06 pm
BrandonBogle wrote: Tue Oct 26, 2021 1:54 pm
123 wrote: Tue Oct 26, 2021 12:53 pm A wire transfer is best (if they trust you with their account information).

If you send them a check they could be inconvenienced by having to go inside a bank to deposit it. Many ATMs have a deposit/item limit of $99,999.99 but you could get around that with two checks (and two deposits) I suppose.
Interesting. I've deposited a $200k+ check at the ATM before without issue. But it is also one of those ATMs that instantly scan's the checks and my account is in good standing with the bank.

That all said, I'm not surprised some banks would put a limit on it, but isn't that why they can apply holds on deposits?!?
$200k check at the ATM :shock: . I would have gone into the branch...
The Schwab App mobile check deposit limit for my brokerage account is $200k.
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bertilak
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Re: how to transfer a large cash gift to a non-relative?

Post by bertilak »

delamer wrote: Mon Oct 25, 2021 10:15 am Just a reminder that I was gifting shares from my Vanguard account to another person’s Vanguard account. I suspect it’s much harder if you are trying to gift to an account held at another custodian.
I gifted share to another Vanguard account using the forms procedure. Worked like a charm. I too wondered if it would be more complicated when going to a non-Vanguard account and someone answered that the forms are designed to handle that.
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djm2001
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Re: how to transfer a large cash gift to a non-relative?

Post by djm2001 »

Gill wrote: Sat Oct 30, 2021 1:44 pm Do you plan to furnish the donee with acquisition date and basis information for the shares transferred? They will need it at the time they sell.
I assumed that Vanguard would automatically port that info to the recipient's account, and they would be able to see it under My Accounts > Cost Basis > Gifted Shares tab. I'll need to check with the recipient that this info shows up there correctly. But just to be safe, I have also emailed them my original acquisition date and cost basis. Thank you for the reminder.
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Dale_G
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Re: how to transfer a large cash gift to a non-relative?

Post by Dale_G »

I used the Vanguard on-line gifting procedure this week. It works like a charm. I am so glad Vanguard has done something right this year. :D

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Re: how to transfer a large cash gift to a non-relative?

Post by delamer »

Dale_G wrote: Sun Oct 31, 2021 12:53 am I used the Vanguard on-line gifting procedure this week. It works like a charm. I am so glad Vanguard has done something right this year. :D

Dale
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