If Simon gives stock to Fred, then the capital gain will be calculated when Fred sells the stock. There will be no capital gain by transferring the stock to nephew. The holding period will be calculated, from the original purchase of stock made by Simon and not from the transfer date. The cost of the stock for Fred will be the actual purchase price paid by Simon. If there is any capital gain when Fred sells the stock, it will be taxed as per Fred$$s tax bracket. But in the situation given the value of the stock has declined. So there may not be any capital gain. However, it cannot be decided with the available data.

If Simon sells the stock and give the sale proceeds to Fred, then any capital gain received from the sale of stock will be taxed to Simon as per his tax bracket. Transfer of sale proceeds to Fred will not have any tax effect.