Starting the dividend reinvestment process as My Own Advisor a few years ago was a little daunting. Not that I didn’t want to or couldn’t become My Own Advisor, but I didn’t want to make big financial mistakes in the process. I’m sure other DIY investors felt the same when starting out, or still do 🙂 Dividend investing was new territory for me just a short time ago.
To overcome this, I read many books and visited numerous websites and blogs. I did this to understand the basics before taking the plunge. I built my understanding and confidence by reading some of Derek Foster’s books, reading the Canadian DRIP Primer and the reviewing the DRIP Investing Resource Center to start with. There were more books and articles than these, but the above were my initial guides. To you, thank you. Because of you and your expertise, I started my journey down the road of dividend investing and the ride to date hasn’t been too bumpy.
While I still have much to learn and apply to become a savvy dividend investor, I learned something new this summer and I want to share it with you – my takeaways for how to transfer a stock share to children.
Why do it?
Transferring a stock share to children (your kids, nieces or nephews, family friends) could be done for many reasons. In my opinion, the objective of this process is not to make them wealthy (although that could be a great outcome…) but learn how to use money as one of life’s essential tools. Like every tool, you should know how to use it efficiently and effectively. You don’t need a hammer for a toothpick nor a saw when scissors will do. I think money is no exception.
If children in our family could learn some of the financial principles I’ve acquired in my twenties and thirties, think how financially savvy they would be? Wouldn’t they be better off, to make better financial decisions? However they choose to use their money at least they would know the risks, benefits and impacts of their decisions. How great is that?
After my wife and I “got going” with some dividend reinvestment plans (DRIPs), we thought it would be a great idea to transfer one of our Canadian dividend-paying stocks to our oldest nephew. Our longer-term plan is to set up each niece or nephew in a DRIP and give them some money each Christmas to invest in their stock. Do they “need” this? No. They are fortunate kids. They have tons of toys and games. They have loving parents. In this regard, they want for very little if anything. My wife and I simply want to contribute to their post-secondary education needs and we think dividend investing is a way we can help. The toys will come and go. The games will change. Their financial needs won’t. We figure we have an opportunity to help them out albeit only in a small but hopefully meaningful way.
What did I learn?
Here is the general process I followed and what I learned to transfer one stock share to our nephew last month:
1. Call the transfer agent.
I did this to confirm transfer requirements. If you have a share certificate like I did, you don’t need to sign the back of the share certificate like some transfer documentation prescribes. Call the transfer agent and ask them what’s best. They know, they see it all the time and they have to process what you send them. The agent I talked to coached me through items #2-6 below…
2. Access the transfer agent’s website – get the securities transfer form.There are many types of security forms listed on the transfer agent’s website. Estate transfer, trust transfer and basic security transfer forms are there. You’ll want to use the latter.
3. Complete the securities transfer form.I filled in the names and addresses of the persons I wanted the security transferred to. In this case, after talking with our siblings, we decided it was best to transfer the share ITF “in trust for” to our nephew. We could have transferred the share in just our nephew’s name since it is not mandatory to have the share held in-trust for children over 12 (our oldest nephew is turning 13 soon). Instead, we chose the ITF route like this:
“Big Bear (insert parent’s name) in trust for Little Bear (insert child’s name)” We did this because of the following:
a) Our siblings (the parents) wanted it this way. The share is the child’s but held in-trust by one parent until such a time the child has responsibility to manage the security and money associated with it in the account. This could be at age 13, 16, 18 or whatever.
b) Because the share is in-trust, the parent can control the account and its administration. The parents felt it would be easier for them to resolve any issues that could come up if they held the share was in-trust, and I think they’re right.
c) With account administrative rights, the parent can sign for the child. This will make DRIP registration and optional cash purchases (OCPs) easier. In our example of Christmas gifts, we can write a cheque; the parents can desposit the cheque; the parent can issue a cheque on behalf of the child for the stock purchase. Our nephew might have a bank account but probably not a chequing account nor the responsibility to manage all this.
d) Dividend-income payments (and taxation related to this) would be attributable to the source and this means the parent, not the child. Taxation for many parents is complex enough and keeping our nephew out of the tax equation is probably a good choice for our siblings.
We completed the form by filling in the equity securities section (# of shares, type of shares) and who currently holds the share (me).
4. Obtain a signature guarantee to accompany the stock transfer.I obtained a signature guarantee from my local branch from the institution I keep my brokerage accounts with. I chose to get this signature guarantee before completing the securities transfer form, but you can do this after form completion all the same. Please sure to get this stamped as indicated on the securities transfer form and signed by a branch staff member. In my case, this was a financial advisor at the branch.
5. I completed a letter of direction.I wrote a brief, half-page letter describing my stock transfer intentions. The transfer agent advised me to do this. In my letter, I was sure to state “who” I wanted the share to be transferred to and “how”. Above, I already explained the “who” (Big Bear (insert parent’s name) in trust for Little Bear (insert child’s name)) but “how” was important as well. If you have a share certificate like I did, you can direct that share to be transferred. If you don’t have a share certificate, you have the option to withdraw a share from your dividend reinvestment plan. A letter of direction helps you clarify your intent.
6. Send all documents via registered mail.I mailed i) my completed securities transfer form, ii) my share certificate and iii) my letter of direction to the stock’s transfer agent by registered mail. I chose this route because I wanted to be sure my share “got there” to start the transfer process. Registered mail assured me of this and I would recommend it to others.
Less than ten business days later, a new share certificate was sent to me with the parent’s name ITF the child’s name, our nephew. Our nephew now has one share held in trust for him. Our next step is to support our siblings in completing the necessary paperwork to initiate their DRIP and optional cash purchase (OCP) plans for this new share. In time we’re confident this share in-trust for our nephew will be a tidy little investment for their post-secondary educational needs. Hopefully our nephew will not only enjoy the dividends at some point but learn about dividend investing and gain financial acumen along the way. Who knows, maybe he’ll become his own (financial) advisor down the road?
Lastly, there is more good news. Not only does this transfer process work but my wife and I already know what we’re giving our nieces and nephews for Christmas 🙂
Do you have any experiences of your own – transferring a stock share?