19 Jan What to Do With Highly Appreciated Stock: Gifting, Selling, or Using a Trust?
Q: I’ve got Nvidia stock I bought in 2021. It’s gone up a lot since then. I want my son to have it but I don’t want to take a massive tax hit. What do I do?
A client asked me this question recently. Since I’ve gotten similar questions over the years, I thought it would be a good idea to get into how to think about this issue here.
Many affluent parents eventually find themselves holding a single investment that has grown far beyond its original size. Often it’s a long-held stock position, something purchased years ago, allowed to compound, and now carrying a substantial unrealized gain.
At that point, the conversation usually shifts. It’s no longer about whether the investment performed well. Instead, the questions become more strategic and more personal:
How do I pass this asset to my child in a tax-efficient way? Should I gift the stock now, sell it first, or use a trust? And is there a way to move the stock out of my estate without giving my child immediate access?
These are the right questions to be asking, and the answers require understanding how capital gains tax, estate tax, and control considerations interact.
Why Capital Gains Tax Drives the Decision
Highly appreciated stock presents a unique planning challenge because of its low-cost basis. Selling it triggers capital gains tax on the full appreciation, while holding it until death generally allows the asset to receive a step-up in basis, eliminating that built-in gain.
That creates a natural tension. Moving the stock out of your estate during life can reduce estate tax exposure, but it often preserves the capital gain. Holding the stock until death may be more favorable from an income-tax perspective, but it keeps the asset inside your taxable estate.
The planning challenge is not about avoiding tax entirely. It is about deciding which tax, at which time, and under whose circumstances.
Gifting the Stock During Life
One common approach is to gift the stock directly to a child while the parent is still alive. From an estate-planning standpoint, this removes the value of the stock from the parent’s taxable estate and uses a portion of the parent’s lifetime gift and estate tax exemption. For 2026, this exemption is $15 million per individual and $30 million for a married couple.
From an income-tax standpoint, however, the child receives the stock with the parent’s original cost basis. If the child later sells the stock, capital gains tax is owed on the entire appreciation – the difference between the price you bought the stock at and the sale price.
This approach can be appropriate in certain situations, particularly when estate tax exposure is a larger concern than capital gains tax, or when the child is in a meaningfully lower tax bracket. But it often surprises families who assume that gifting alone eliminates capital gains tax. In most cases, it does not.
Selling the Stock and Gifting the Proceeds
Another straightforward option is for the parent to sell the stock, pay the capital gains tax, and then gift the cash proceeds to the child. This approach offers simplicity and certainty. The tax is paid once, and the child receives cash with no embedded tax liability.
The tradeoff is timing. By selling during life, the parent voluntarily gives up the opportunity for a basis step-up at death. This may be appropriate if the investment no longer fits the parent’s portfolio or if liquidity is needed for other planning objectives. However, from a purely tax-efficiency standpoint, it is often the most expensive option over the long term.
Using a Trust to Combine Control and Flexibility
For many affluent families, trusts offer a more nuanced solution. A trust can be designed so that the child does not receive immediate access to the stock, while still allowing the parent to move the asset out of their taxable estate.
It is important to be clear, though: transferring appreciated stock to a trust during life generally does not eliminate capital gains tax. In most lifetime transfers, the trust inherits the parent’s cost basis, and the capital gain remains if the stock is sold. In certain advanced designs, a trust can be structured so that assets transferred during life remain includable in the parent’s estate (and thus preserving a step-up in basis) while still achieving control and long-term planning goals. These strategies require careful coordination and are highly fact-specific.
Where trusts are powerful is not in eliminating tax by default, but in allowing families to coordinate multiple goals. A trust can control the timing of distributions, align tax responsibility with the appropriate party, and integrate estate tax planning with broader family and business considerations. In more advanced designs, planning may preserve flexibility around basis treatment while still addressing estate tax exposure, but this requires careful structuring.
The Real Decision: Balancing Estate Tax and Capital Gains
At the core of this issue is a balancing act between estate tax and capital gains tax. Reducing one often increases exposure to the other. The goal is not to chase a single tax outcome, but to optimize the overall result for the family across generations.
The right approach depends on total net worth, anticipated future appreciation, state estate tax exposure, the child’s maturity, and the level of control the parent wants to maintain. No single strategy works in every case.
Why Control Is Often the Deciding Factor
In practice, many affluent parents are less focused on eliminating every dollar of tax and more focused on ensuring that wealth is transferred responsibly. They want to avoid sudden access to large sums, encourage long-term stability, and protect family relationships.
Trust-based planning is often about intention and structure first, with tax efficiency as a supporting benefit rather than the sole driver.
A Thoughtful Planning Opportunity
Highly appreciated stock is not a problem to be solved quickly. It is an opportunity to plan intentionally.
With the right strategy, families can reduce unnecessary tax exposure, preserve flexibility, maintain control, and ensure that wealth is transferred in a way that reflects their values and priorities.
Our practice works with a limited number of families each year, focusing on affluent parents who want clarity, control, and thoughtful coordination between tax planning and legacy planning.
If this approach resonates with you, apply to work with us here: