How to Manage Stock Options When the Owner Passes

Your Santa Ana Estate Administration attorney wants you to know that an heir can inherit a range of property and assets when a family member dies. Of these assets, the deceased individual might leave a surviving spouse or child some stock options.

Deciding what to do with someone’s stock options can be overwhelming. Many people don’t know how to exercise the options or whether to just keep them. 

Understanding Inherited Stock Options

If you inherit stock upon the original owner’s death, your first task will be to check the paperwork that comes with the options to determine whether they expired upon the original holder’s death. Some options expire on the death of the holder, and others do not.

If the stock options survive the original holder, you’ll next need to determine what type of options they are: Incentive stock options (ISOs) or nonqualified stock options (NSOs). The biggest difference between them is the way they’re handled for tax purposes.

In either case, you have a choice about when you “exercise” the stock options, and your estate administration attorney can help you navigate these options. When you exercise a stock option, you’re choosing to purchase the shares of stock in accordance with the stock option agreement. This usually offers a price lower than the market value at the time of exercise.

Tax Liability

You will face tax consequences if you exercise the stock options. You can choose not to exercise them right away, in which case, you’d have no immediate tax liability. With stock options, taxes are owed when the options are exercised.

ISOs:  If you’ve inherited ISOs, they will be taxed when you choose to exercise them, but at the alternative minimum tax (AMT) rate. When you sell them, you’ll be taxed again, but at your regular income tax rate. This is true unless you exercised them at least a year before you sold them and you sold them at least two years after the original owner was granted the ISOs. Then different rules apply. You’ll need to talk with a Santa Ana estate administration attorney to help you work through the complexities of when to exercise or sell your inherited stock options.

NSOs: These stock options are also taxed when you exercise them. You’ll be taxed on the difference between the exercise price and the fair market value of the stock on the day you exercise them. This gain will be subject to your regular income tax rate. Once you sell the stock, you’ll be taxed on the difference between the sale price and the fair market value at the time of exercise.

Speak to an Experienced Santa Ana Estate Administration Lawyer Today

Whether you inherited someone’s stock options or want to include your stock options in an estate plan, contacting a skilled and trusted estate planning lawyer is crucial. You need a legal team to guide you through the complicated process and ensure your loved ones remain protected when you die.

Our Santa Ana estate administration lawyers can assist you in every step of the planning or administration process, so you protect your interests and financial future. Don’t attempt to handle this matter yourself. You could make a mistake that puts you and other beneficiaries at risk and exposes your family member’s assets to legal action by creditors. Contact us at (800) 244- 8814 to get started. 

If you have any further questions about asset protection planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at our California asset protection office at 800-244-8814 to set up a consultation.