As a gift for her granddaughter Ella’s 13th birthday, Melanie bought 500 shares of Soft’n Sales Corporation stock on September 25, 2006. Melanie bought the stock directly from the underwriter for $20,000. Soft’n Sales had just gone public, and Melanie believes the stock will be a good investment for Ella’s college education. Melanie tells Ella that she will receive control of the stock on her 18th birthday so long as Ella maintains an A average in high school.

Soft’n Sales is a software development enterprise in San Diego. At the date of the public offering, its gross assets total $10 million. These assets include mostly intangibles, equipment, and raw materials for product development. The company owns no real estate and holds no investment securities. All capital is reinvested in the enterprise. When Ella begins college in September 2011, the Soft’n Sales stock is worth $50,000. Explain Melanie’s options for transferring the stock to Ella to use for college expenses. What are the tax implications of each option?