Using Estate Planning Tools to Transfer Stocks and Equity Awards- Passing down wealth in the form of stock options, restricted stock, restricted stock units, ESPPS, other kinds of equity awards, or holdings of company shares requires unique estate planning considerations. A recent article, “Estate and Charitable Planning for Stock Options, RSUs, and Company Stock” from Forbes, presents insights on navigating this complex estate planning area.
Tax law changes are coming soon. However, the provision on the exemption amounts for estate tax and gift tax won’t impact the core strategies of these types of planning tools.
Think of revocable trusts, also called living trusts, like baskets to be filled with assets. By placing assets into a revocable trust, you avoid probate, maintain privacy and streamline asset distribution to beneficiaries. The revocable trust is flexible and can be altered in any way you want while living.
An irrevocable trust is different. The grantor cannot modify it once it is established and funded. However, the irrevocable trust comes with more tax advantages and asset protection. Assets in an irrevocable trust have better protection from creditors and may not be counted for Medicaid purposes. Your estate planning attorney will help determine which assets are best placed in this trust.
Beneficiary designations allow assets to be left directly to beneficiaries for financial instruments, such as life insurance policies, investment accounts and retirement funds. Depending upon the terms of your employer’s stock plans and procedures, it may be possible to have beneficiaries designated for equity awards, including RSUs (Restricted Stock Units) or NQSOs (Non-Qualified Stock Options).
The account your shares go into from an RSU vesting, options exercise, or ESSP purchase may have separate forms for beneficiary designations. The beneficiary designations you may have elected for stock grants do not automatically apply to the actual shares received. You’ll need to take extra steps to be sure that these assets go to the right people.
Each company’s stock plan has its own rules for what happens to any outstanding equity awards upon death. It’s possible for unvested stock options and RSUs to be forfeited. Read the grant agreement carefully. In some companies, the grant agreement allows vesting to continue or even to accelerate the vesting, and in the case of options, extend the exercise period for vested options.
Don’t neglect tax planning for gifting and wealth transfer. You may gift up to $19,000 every year to any individual without impacting your lifetime exemption or paying gift tax. Once you exceed the annual amount, your lifetime exemptions are reduced.
With gifts of assets like company stock, tax basis and holding periods carry forward. This lifetime gifting is helpful for all income levels, including gifting shares to people who would have a lower tax rate than gifts or on capital gains when stocks are sold.
Be mindful of the kiddie-tax rules before gifting shares to children to sell. Check with your estate planning attorney to clarify how this might impact tax liabilities.
Donating company stocks held for at least one year to charities is more tax-efficient than selling the stock and gifting cash proceeds. A tax deduction for the fair market value is created at the time of the stock donation. Appreciated investments are an excellent way to support charities, avoiding capital gains for the donor, which would otherwise be realized at the time of sale.
Other estate planning tools used for wealth transfer are Grantor-Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs) and Charitable Lead Trusts (CLTs). Your estate planning attorney can help guide you in which of these numerous tools will be most effective for your own estate plan.
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Using Estate Planning Tools to Transfer Stocks and Equity Awards
Reference: Forbes (May 14, 2025) “Estate and Charitable Planning for Stock Options, RSUs, And Company Stock”
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