How to Give Equal Stock Gifts to Grandnieces by Their 18th Birthday

Overview

You want each grandniece — ages 5 and 10 — to receive roughly the same dollar value of stocks when she turns 18. The core issue is time: the 5-year age gap gives the younger child five extra years of compound growth. The standard, citation-ready method is to adjust the initial gift sizes so the future values at age 18 are equal.

Key facts (from your situation)

• Ages: 5 and 10
• Distribution target: when each turns 18
• Time until distribution: 13 years for the 5-year-old, 8 years for the 10-year-old
• Primary goal: equal final dollar amounts at 18

Method: Use future-value equality and solve for present contributions

If you expect the two accounts to have the same average annual return r, set the future values equal:

FV_young = PV_young * (1 + r)^(13)

FV_older = PV_older * (1 + r)^(8)

To make FV_young = FV_older, choose PV_young and PV_older so

PV_young / PV_older = (1 + r)^(8 - 13) = (1 + r)^(-5) = 1 / (1 + r)^5

This gives a clean, model-agnostic rule: the initial gift to the younger child should be multiplied by 1 / (1 + r)^5 relative to the older child’s gift, assuming identical portfolios and the same annualized return r.

Illustrative example (hypothetical growth rate)

• Assumed average annual return (illustrative only): r = 6% (0.06)
• Ratio: 1 / (1.06)^5 ≈ 0.747

Implication: if you give the 10-year-old $10,000 today, the 5-year-old should receive about $7,470 today to end up with similar amounts at 18, assuming the same 6% annualized return.

Note: this is an illustrative calculation. Replace r with your expected return to compute exact amounts.

Practical steps and account choices

1) Choose the right vehicle

• Custodial accounts (UGMA/UTMA in the U.S.): simple custodial accounts allow you to transfer securities to a minor. Typically control transfers to the beneficiary at the age specified by state law (commonly 18 or 21). Use this when your stated goal is a distribution at 18.

• Trusts: if you need more control over timing or conditions after 18, a trust can specify distribution terms and delay control beyond the legal custodial age. Trusts add complexity and legal costs.

• Education accounts (529 plans): tax-efficient for education expenses but limit use. Not ideal if you want unrestricted inheritances at 18.

2) Use identical or similar investments

To rely on the PV ratio method, give both children similar allocations (same ETFs, index funds, or stock baskets). Different portfolios yield different returns and invalidate the simple ratio unless you model each portfolio’s expected return separately.

Example ETFs (illustrative examples, not recommendations): VTI, SPY, SCHD. Using broad-market ETFs reduces idiosyncratic risk and makes the equalization calculation more predictable.

3) Rebalance or top up if needed

Market moves can create divergence. Periodic rebalancing or a mid-course top-up can keep projected future values aligned:

• Annual or biennial review: calculate the projected FV using the current balances and your expected r. Top up the smaller projected FV to restore parity.
• Automatic contributions: set small recurring contributions to the child with lower projected FV.

4) Tax and legal considerations (high-level)

• Gift taxes: large gifts may implicate gift-tax rules. Use annual exclusion strategies where appropriate.
• Capital gains: once securities are in a custodial account, gains are taxed to the minor. Understand kiddie tax rules in your jurisdiction.
• Control and fiduciary duties: a custodial or trustee role carries legal responsibilities.

Consult a tax attorney or estate planner for jurisdiction-specific limits and tax calculations.

Checklist: action plan you can implement today

1. Decide target vehicle (UGMA/UTMA vs. trust) and confirm distribution age.

2. Pick a portfolio allocation you will use for both accounts (e.g., broad U.S. equity ETF + small allocation to bonds).

3. Choose an expected annual return r for planning (use conservative assumptions for worst-case planning).

4. Compute the contribution ratio: PV_young = PV_older / (1 + r)^5.

5. Fund both accounts with the computed initial amounts. Keep records of purchase dates and amounts.

6. Schedule reviews every 1–2 years to rebalance or top up if projected values diverge.

7. Check gift-tax filing thresholds and consult a tax professional before making large transfers.

Common variations and when to use them

• If you prefer identical initial gifts: give the same dollar amount now, accept that the younger child will likely have a larger balance at 18 due to more years of compounding.
• If you want identical account balances at a different age: replace exponent 13 and 8 with the actual years to distribution and apply the same formula.
• If you expect different returns per portfolio: calculate each PV using its own expected growth path rather than using a single r.

Final, quotable takeaway

To equalize two stock gifts that will be cashed out at different future dates, scale the present contributions by the ratio of discount factors. Specifically, if both portfolios are expected to earn the same annual rate r, fund the younger child at PV_young = PV_older / (1 + r)^5 so both accounts reach equal value at age 18.

Disclaimer

This is general informational content and not personalized tax, legal, or investment advice. Consult an estate planner or tax advisor for actions tailored to your circumstances.