Opções de compra de ações exercidas após a morte

Opções de estoque do empregado transferível.
As opções de compra de ações dos empregados geralmente representam uma parcela significativa do patrimônio líquido de um executivo. Isso pode ser particularmente verdadeiro para os executivos que trabalham para tecnologia ou outras empresas de crescimento emergente, devido à prevalência de opções de compra de ações nessas empresas e seu potencial de valorização significativa. Com uma taxa de imposto de propriedade federal superior de 55%, está se tornando cada vez mais comum que os executivos considerem a remoção desse ativo de seus bens tributáveis ​​ao transferir as opções para os membros da família ou para um fideicomisso em benefício dos familiares. Uma transferência de opções de ações de empregados, no entanto, envolve a consideração de várias regras de propriedade, do presente e do imposto de renda.
Este artigo examina as consequências do imposto federal, do presente e do imposto sobre o rendimento das transferências de opções por um empregado e aborda certas questões relativas às leis de valores mobiliários relacionados. Como se observa neste artigo, os empregadores e funcionários interessados ​​em buscar uma transferência de opção devem proceder com cautela.
Os empregadores costumam conceder opções de compra de ações aos empregados, seja sob a forma de "opções de ações de incentivo" e quot; (& quot; ISOs & quot;) ou "opções de estoque não qualificadas" & quot; ("NSOs"). Os ISOs oferecem aos empregados determinados benefícios fiscais e estão sujeitos aos requisitos de qualificação no Internal Revenue Code ("IRC"). (IRC В§422.) Entre outras coisas, os ISOs estão sujeitos a uma proibição geral contra a transferência, embora os ISOs possam ser transferidos para os beneficiários de um empregado (incluindo a propriedade do empregado) após a morte do empregado. (IRC В§422 (b) (5).) Uma opção que é transferida (ou transferível) durante a vida útil do empregado, seja por seus termos originais ou por alteração subsequente, não será qualificada como um ISO, mas será tratada como uma NSO para fins fiscais.
Embora os NSOs não estejam sujeitos à limitação de não transferência de ISO, muitos planos de opções de estoque contêm restrições de transferência semelhantes às que se aplicam aos ISOs. Os empregadores que permitem aos funcionários transferirem suas opções geralmente fazem isso de forma restrita, por exemplo, limitando as transferências de opções para os membros da família do empregado ou para um fideicomisso familiar.
Considerações fiscais sobre o patrimônio.
Se um funcionário morre possuindo opções de compra de ações não exercidas, o valor da opção no momento da morte (ou seja, a diferença entre o valor justo de mercado das ações eo preço de exercício da opção) será incluído na propriedade do empregado e sujeito à propriedade imposto. (IRC В§2031.) Normalmente, após a morte do empregado, as opções podem ser exercidas pela propriedade do executivo ou por seus herdeiros. Em ambos os casos, as consequências do imposto de renda após o exercício após a morte do empregado dependem de se a opção é um ISO ou um NSO.
No caso de um ISO, o exercício não gerará receita tributável e as ações compradas terão uma base de imposto que & quot; passos "& quot; ao seu justo valor de mercado no momento da morte do executivo. (IRC В§421 (a) (1), (c) (3).) Uma venda subseqüente das ações gerará ganho ou perda de capital. No caso das OSN, o exercício irá desencadear a receita ordinária medida como a diferença entre o valor justo de mercado das ações no momento do exercício e o preço de exercício da opção, sujeito a uma dedução de qualquer imposto patrimonial pago com relação à ONS. Não há nenhum aumento na base de imposto como resultado da morte do empregado. (IRC В§83 (a).)
Conforme mencionado acima, no entanto, os ISO não são transferíveis durante a vida útil do empregado. Uma vez que os ISOs não apresentam as mesmas oportunidades de planejamento imobiliário que os NSOs, essa discussão é limitada à transferibilidade de NSOs (incluindo ISOs que se tornam NSOs como resultado de uma alteração para permitir transferibilidade ou como resultado de uma transferência de opção real).
Uma transferência de opções de ações de empregados fora da propriedade do empregado (ou seja, para um familiar ou para uma família) oferece dois benefícios de planejamento primário: primeiro, o empregado pode remover um bem de alto crescimento de sua propriedade; Em segundo lugar, uma transferência para toda a vida também pode salvar os impostos sobre a propriedade, removendo do patrimônio tributável do empregado os ativos que são usados ​​para pagar os impostos de renda e presente resultantes da transferência da opção. Na morte, os impostos sobre o patrimônio são calculados com base no patrimônio bruto do falecido antes do pagamento de impostos. Em outras palavras, o imposto sobre a propriedade é pago na parcela da propriedade que é usada para pagar os impostos sobre o patrimônio.
Por exemplo, se a propriedade tributável do falecido for de US $ 1 milhão e o imposto sobre a propriedade for de US $ 300.000, a propriedade terá pago impostos sobre os $ 300.000 usados ​​para pagar o imposto. Ao remover os ativos imobiliários tributáveis ​​do falecido que, de outra forma, seriam usados ​​para pagar o imposto, apenas o & quot; net & quot; O valor da propriedade do decedente é tributado na morte. Se o empregado transferir opções e incorrer em doações e taxas de renda mais recentes como resultado (discutido abaixo), a carga fiscal final é reduzida.
Considerações fiscais sobre os presentes.
A transferência de propriedade por meio de um presente está sujeita às regras fiscais de presentes. Essas regras aplicam se a transferência está em fidelidade ou não, se o presente é direto ou indireto e se o imóvel é real ou pessoal, tangível ou intangível. (IRC В§2511; Treas. Reg. В.252511-2 (a).) Para fins de imposto sobre presentes, uma opção é considerada propriedade. (Ver Rev. Rul. 80-186, 1980-2 C. B. 280.)
Quando uma opção é transferida por meio de presente, o valor do presente é o valor da opção no momento da transferência. Os regulamentos fiscais de presente prevêem que o valor da propriedade para fins de imposto sobre presentes é o preço pelo qual a propriedade mudaria de mãos entre um comprador disposto e um vendedor disposto, sem ser obrigado a comprar ou a vender, e ambos estavam razoavelmente informados do fatos relevantes. (Treas. Reg. В.252512-1.)
A aplicação deste padrão aos NSOs é particularmente desafiadora, dado suas características únicas. Além disso, não parece haver nenhum precedente do IRS para avaliar os NSOs para fins de imposto sobre presentes, e não está claro como o IRS valoraria um NSO após a auditoria. (No PLR 9616035, o IRS sugeriu que métodos específicos de pagamento sob as opções deveriam ser considerados na avaliação das opções para fins de impostos sobre os presentes).
As restrições e condições tipicamente impostas às opções de compra de ações dos empregados, como limites de transferência, condições de aquisição e provisões de vencimento vinculadas ao emprego, devem suportar uma avaliação mais baixa do que as opções negociadas, especialmente se a transferência da opção ocorrer logo após a data da concessão da opção quando A opção é desativada e a opção & quot; spread & quot; é mínimo (ou inexistente).
Embora os aprimoramentos recentes da metodologia de avaliação de opções para divulgação da SEC e os propósitos de contabilidade financeira possam ser úteis, um funcionário que deseja transferir uma ONS deve estar preparado para defender a valoração da opção usada para fins de imposto sobre presentes e deve considerar a obtenção de uma avaliação independente. Declaração do Conselho de Normas Contábeis nº 123, Contabilização da Remuneração Baseada em Ações.)
Requisito de presente completo.
Para ser uma transferência efetiva, o presente deve estar completo. (IRC В§ 2511.) Um presente está incompleto se o doador conservar qualquer poder sobre a disposição da propriedade superdotada após a transferência pretendida. (Treas. Reg. В.25.2511-2 (b), (c).) Assim, por exemplo, uma transferência de opção para um "viver" revogável típico; A confiança é considerada incompleta.
O IRS abordou as consequências do imposto de renda e de renda da transferência de um NSO de um funcionário em uma série de decisões de cartas particulares começando em 1993. (PLRs 9722022, 9714012, 9713012, 9616035, 9514017, 9350016 e 9349004.) Nessas decisões, o IRS determinou que a transferência do empregado era um presente completo para fins de imposto sobre presentes.
No entanto, em quatro dessas decisões, as opções envolvidas foram totalmente adquiridas e exercitáveis ​​no momento da transferência. (PLRs 9722022, 9514017, 9350016 e 9349004.) Os documentos PLR 9714012, 9713012 e 9616035 são silenciosos sobre este ponto, embora PLR 9616035 sugira implicitamente que as opções são exercíveis após a transferência declarando que, após a transferência, "os membros da família podem exercer a opções e estoque de compras a seu critério. & quot;
O IRS ainda não determinou especificamente se uma transferência de opções não vencidas resulta em um presente completo para fins de imposto sobre presentes. Normalmente, a capacidade de exercício das opções não vencidas baseia-se no emprego continuado do empregado com o empregador, e é possível que o IRS não considere que o presente esteja completo até que a opção se torne exercível.
Isso poderia prejudicar significativamente os benefícios planejados de planejamento imobiliário, uma vez que o valor da opção poderia ser muito maior no momento da aquisição do que no momento da concessão. Em circunstâncias diferentes, o IRS concluiu anteriormente que, quando um empregado-doador poderia derrotar uma transferência ao encerrar seu emprego, a transferência era um presente incompleto. (Ver Acção sobre a Decisão / CC-1990-026 (24 de Setembro de 1990).)
No entanto, enquanto o empregado não reter direitos na opção, a transferência de uma opção deve ser considerada completa mesmo que a opção não seja então exercível e expirará após a cessação de emprego do empregado. Nos PLRs 9722022 e 9616035, o IRS observou que, embora o exercício da opção transferida possa ser acelerado após a aposentadoria, invalidez ou morte do empregado, esses eventos foram atos de significância independente, e sua influência resultante sobre a capacidade de exercício da opção transferida deve ser considerada colateral ou acessório ao término do emprego. (Veja também Rev. Rul. 84-130, 1984-2 C. B. 194; Rev. Rul. 72-307, 1972-1 C. B. 307; mas veja PLR 9514017 em que o IRS parece limitar especificamente esta análise a opções adquiridas).
As regras fiscais de presente prevêem que os primeiros $ 10.000 de presentes feitos a uma pessoa durante um ano civil (US $ 20.000 em relação a presentes comuns de marido e mulher) são excluídos na determinação do valor dos presentes tributáveis ​​realizados durante o ano civil. A exclusão anual não está disponível, no entanto, em conexão com presentes de interesses futuros, relacionando-se geralmente com os presentes, cujo gozo e posse são adiados para uma data futura. O IRS pode ver a transferência de um NSO não-roteável como um presente de interesse futuro, que não se qualificaria para a exclusão anual.
Mesmo que a opção não seja considerada um interesse futuro, a transferência de um NSO, além da transferência definitiva, pode não ser elegível para a exclusão anual, a menos que a transferência atenda aos requisitos da Seção 2503 (c) do Código da Receita Federal (relativo à transferência para menores de idade), ou, no caso de transferências para uma confiança irrevogável, a confiança inclui o chamado "Crummey & quot; provisões (relativas ao direito dos beneficiários de exigir uma parcela do corpus de confiança).
Considerações fiscais sobre o rendimento.
As consequências do imposto de renda federal decorrentes de um presente de ONS são mais previsíveis do que as conseqüências fiscais de presente descritas acima. Em geral, a transferência em si não deve ter conseqüências de imposto de renda para o empregado ou o donatário, embora o empregado (ou a propriedade do empregado) permaneça tributável em qualquer ganho realizado em conexão com o exercício da opção.
Os NSOs não são tributados na concessão, a menos que tenham um "valor justo de mercado facilmente determinável" na acepção do Regulamento do Tesouro. (Treas. Reg. В§1.83-7 (b).) Dado os rigorosos testes impostos de acordo com essas regras, é improvável que um NSO com transferibilidade limitada seja considerado um valor justo de mercado facilmente verificado e o IRS tenha mantido. (PLR 9722022.) Como resultado, as opções transferíveis não devem ser tributadas na concessão, mas devem, em vez disso, ser tributadas no exercício de acordo com os princípios da Seção 83 do Código da Receita Federal (ver, por exemplo, PLR 9616035.)
Em geral, de acordo com a seção 83 (a), o exercício de uma NSO desencadeia renda de remuneração ordinária igual à diferença entre o valor justo de mercado das ações compradas e o preço de exercício da opção (ou seja, o "spread").
Para fins da Seção 162 (m) do Código, que impõe um limite de US $ 1 milhão sobre a dedutibilidade da compensação paga a certos diretores de empresas públicas, o IRS concluiu anteriormente que uma opção ou alteração no plano para permitir transferibilidade limitada não é considerada um material modificação da opção ou plano para fins da isenção privada a pública da seção 162 (m) ou a regra de transição "avô" provisões (PLRs 9722022, 9714012 e 9551024; Registros do Testemunho: §1.162-27 (f) e (h) (3).)
O empregado não reconhecerá qualquer receita ou ganho após a transferência de uma opção. O donatário também não reconhecerá qualquer lucro tributável como resultado da transferência.
Após o exercício de opção pelo donatário, o empregado / doador (ou a propriedade do empregado se o funcionário for falecido) reconhecerá a renda da remuneração ordinária geralmente medida como a diferença entre o valor justo de mercado das ações compradas eo preço de exercício da opção. Se o donatário exercer as opções antes da morte do empregado, qualquer imposto sobre o rendimento pago pelo empregado evita o imposto imobiliário na morte do empregado.
Assim, de fato, o empregado fez um presente livre de imposto para o donatário no valor dos impostos sobre o rendimento pagos como resultado do exercício. Se as ações adquiridas estiverem sujeitas a um "risco substancial de confisco", "quot; a data da tributação e a mensuração do resultado ordinário em conexão com o exercício da opção podem ser diferidas, a menos que o empregado faça uma eleição nos termos da seção 83 (b) do Código da Receita Federal. O empregador tem direito a uma dedução correspondente.
As decisões do IRS são silenciosas quanto às obrigações de retenção de impostos resultantes do exercício da opção, embora, presumivelmente, o resultado de compensação reconhecido pelo empregado / doador como resultado do exercício fique sujeito à retenção de imposto de renda e emprego. (Ver Rev. Rul. 67-257, 1967-2 CB 3359.) Se as ações de opções forem usadas para satisfazer as obrigações de retenção de impostos, o donatário será considerado um presente para o empregado-doador pelo valor de impostos pago. Este resultado sugere que o exercício da opção e qualquer retenção na fonte deve ser coordenado entre o empregador, o empregado / doador e o donatário.
Consequências para Donee.
O donatário não assume qualquer responsabilidade em relação à transferência de opção ou ao seu exercício. Após o exercício da opção, a base tributária do donatário nas ações adquiridas é igual à soma de (i) o preço de exercício da opção e (ii) o rendimento ordinário reconhecido pelo doador em relação ao exercício da opção. (Ver PLR 9421013.) Após uma venda ou troca subsequente das ações, o donatário reconhecerá ganho ou perda de capital, conforme aplicável.
Considerações sobre leis de valores mobiliários.
As opções transferíveis detidas por funcionários de empresas públicas levantam uma série de questões de acordo com as leis federais de valores mobiliários. Além disso, as empresas privadas devem ser sensíveis às leis de valores mobiliários aplicáveis.
Regra 16b-3. 1996 muda para o chamado "balanço curto" As regras de negociação de lucro de acordo com a Seção 16 da Securities Exchange Act de 1934 (as "Novas Regras") simplificam bastante a análise da Seção 16 relativa a opções transferíveis. A seção 16 sujeita oficiais, diretores e 10% acionistas ("iniciantes") de empresas públicas a obrigações de relatório e potencial responsabilidade em relação a transações envolvendo valores mobiliários da empresa. A Regra 16b3 oferece aos insiders amplas isenções da Seção 16 em relação a transações compensatórias.
A partir de 1º de novembro de 1996, as opções já não precisam ser intransferíveis para beneficiar de isenção de acordo com a Regra 16b3. Como resultado, de acordo com as Novas Regras, a concessão de um NSO transferível ou uma alteração a uma opção existente para permitir transferibilidade não deve ser considerada como "compra" sob a Seção 16 que pode ser "correspondente" com uma venda de títulos do empregador durante os seis meses anteriores e posteriores à concessão da opção. (Observe que, de acordo com as Novas Regras, a alteração de uma opção para permitir a sua transferência não será tratada como um cancelamento / reembolso para os fins da Seção 16, como era o caso de regras anteriores. SEC Release 34-37260, fn. 169.)
No entanto, podem ser aplicadas regras diferentes, no caso de opções alteradas antes de 1º de novembro de 1996, uma vez que as opções alteradas podem estar sujeitas às regras anteriores. Além disso, no caso de uma transferência de opção por um insider para um membro da família que viva no mesmo agregado familiar do que o iniciado, a opção será considerada indiretamente propriedade do insider e permanecerá sujeita a relatórios contínuos nos termos da Seção 16 (a) do Securities Exchange Act de 1934. Uma alteração do plano que permite transferências de opções geralmente não requer aprovação do acionista.
Tradeability of Shares.
O Formulário S-8 é o formulário padrão de registro da SEC para valores mobiliários da empresa pública a serem emitidos para os empregados nos planos de participação de empregados. Em essência, o registro no Formulário S8 garante que as ações que os empregados recebem ao abrigo desses planos serão livremente negociáveis ​​no mercado aberto. Infelizmente, o formulário S8 geralmente é limitado para compartilhar emissões para funcionários e não se estende às ações emitidas em conexão com uma opção transferida pelo empregado-doador durante a vida.
Embora a SEC considere alterar essa limitação, de acordo com a lei atual, as ações emitidas para o donatário de uma opção não serão negociadas livremente, mas serão consideradas "restrito" (ou seja, transferíveis sujeitos às restrições de transferência impostas nos termos da Regra 144 do Securities Act de 1933). Como resultado, as ações emitidas para o donatário estarão sujeitas ao requisito do período de retenção de acordo com a Regra 144. Em circunstâncias limitadas, o Formulário S3 pode estar disponível para cobrir a revenda de compartilhamentos de opções pelo destinatário.
As empresas que considerem as opções de alteração para permitir transferências também devem ser sensíveis às conseqüências contábeis financeiras dessa alteração. Em particular, as empresas devem consultar seus auditores para determinar se essa alteração desencadeia uma nova data de mensuração. A alteração de uma opção para permitir transferências para as entidades familiares ou familiares do empregado (por exemplo, fideicomissos familiares ou parcerias familiares) não deve desencadear uma nova data de mensuração. Se uma nova data de medição for desencadeada, a empresa seria obrigada a reconhecer a despesa de compensação com base na diferença entre o preço de exercício da opção e o valor das ações da opção no momento da alteração.
As consequências das transferências de opções podem ser incertas. Os ISOs não podem ser transferidos e continuar qualificando como ISOs, mas os NSOs podem ser transferidos se o plano de opção o permitir. Os funcionários / doadores devem enfrentar uma série de preocupações complexas de impostos sobre os presentes e os rendimentos, bem como a potencial falta de comercialização das ações de opções transferidas antes de decidir buscar uma transferência de opção. No entanto, em certas situações, os benefícios do planejamento imobiliário de uma transferência de opção podem ser substanciais e ainda podem superar essas desvantagens.

Opções de ações exercidas após a morte
Um dos seus melhores clientes acabou de ser promovido, e seu pacote de compensação inclui opções de ações. Para fator em seu plano, você precisa entender como as opções funcionam, como elas são tributadas e o que acontecerá quando ela morrer.
Componentes do pacote.
Existem quase tantos planos de opções de ações como as empresas que os oferecem. Para entender o que seu cliente possui, familiarize-se com os conceitos-chave.
Uma opção de compra de ações é um acordo entre seu cliente e seu empregador que lhe dá o direito de comprar ações da empresa em alguma data futura, a um preço determinado no momento do acordo.
Diga a negociação da empresa em US $ 20 por ação quando as opções forem concedidas. O acordo pode dizer que, dentro de quatro anos, ela tem o direito de comprar 100 mil ações em US $ 20.
Se as ações estiverem negociando em US $ 35 em quatro anos, ela pode fazer US $ 15 por ação em 100.000 ações se ela exercer suas opções (comprando as ações) e depois vende imediatamente o estoque.
Geralmente, há um período de espera ou de aquisição, entre o momento em que as opções são concedidas e quando seu cliente é elegível para exercê-las. Michael Friedman, sócio da McMillan LLP em Toronto, aponta para cinco condições de aquisição comuns.
Se, por exemplo, as opções forem vendidas a uma taxa de 25.000 por ano ao longo de quatro anos, o contrato pode dizer:
Após um ano, ela pode comprar 25 mil ações em US $ 20; Depois de dois anos, ela pode comprar outras 25 mil ações em US $ 20; Depois de três anos, ela pode comprar outros 25 mil em US $ 20; Depois de quatro anos, ela pode comprar os 25 mil finais em US $ 20.
2. Avaliações de desempenho dos funcionários.
As empresas podem ter elaboradas matrizes de avaliação e vincular a aquisição de direitos a desempenho.
4. Desempenho da divisão de empregados dentro da empresa.
5. Participação de mercado da empresa versus concorrentes.
Para 3, 4 e 5, a aquisição de direitos ocorre quando os objetivos estabelecidos pela empresa são alcançados.
Consequências tributárias.
Quando as opções do seu cliente são concedidas, não há implicações fiscais imediatas, notas da Friedman. O imposto entra em vigor quando ela exerce as opções, assumindo que ela é empregada por uma empresa pública (para regras sobre empresas privadas, veja "Opções de ações da empresa privada" abaixo).
"Cálculo de imposto", a seguir, ilustra como o processo funcionaria.
Friedman observa que são necessários três elementos para se qualificar para uma dedução sobre a renda da opção de compra de ações:
as ações devem ser prescritas, o que significa essencialmente ações ordinárias simples; deve haver uma relação entre o seu cliente ea empresa empregadora; e as opções não podem ser in-the-money, então o valor que o seu cliente paga para adquirir as ações depois que as opções virem deve ser igual ao FMV do estoque no momento em que as opções são concedidas.
Por exemplo, se a FMV das ações da empresa for de US $ 20 quando seu emprego for oferecido, o preço da opção na oferta de emprego deve ser de US $ 20 para que ele se qualifique para a dedução fiscal. A dedução destina-se a incentivar os funcionários a ajudar as empresas a crescer e aumentar os preços das ações.
Não foi criado igual.
As pessoas tendem a pensar que as opções de estoque podem torná-las ricas. Mas nem todos os planos são criados iguais, e alguns não são tão atraentes, observa Bernard Pinsky, sócio da Clark Wilson LLP em Vancouver.
"As pessoas pensam mais sobre o preço [da opção] e quantos obtêm, e provavelmente não pensam muito nos termos específicos do [plano], como o que acontece na morte. E, provavelmente, ninguém pensa que eles vão morrer no próximo pouco [para que isso seja importante para eles ".
Ele diz que os documentos do plano normalmente não são excessivamente complicados, então, na maioria dos casos, não é necessário obter ajuda de um advogado. Mas os clientes têm que ler os planos, porque pode haver termos que não gostariam.
"Se [o seu cliente] tiver a capacidade de negociar termos com o [seu] empregador, uma das coisas [ela] deve negociar é a capacidade de ter todas as opções não devolvidas na morte, sem limitações específicas apenas porque [ela] faleceu ".
Adiciona Lisa Goodfellow, parceira da Miller Thomson LLP em Toronto: "Na maioria dos casos, um executivo não tem absolutamente nenhum controle sobre o que o plano de opções de ações diz. A maioria dos planos da empresa são escritos em pedra, mas os executivos com poder de barganha podem ter um contrato de trabalho que ofereça maior benefício do que o que o plano oferece.
"Quando você está lidando com esse tipo de ofertas, [o cliente] deve obter conselhos de um advogado de emprego".
Morte, opções e impostos.
Podem surgir vários cenários fiscais na morte, dependendo se o seu cliente exerceu algumas, nenhuma ou todas as suas opções e como o plano da sua empresa trata as opções não adotadas.
Alguns planos cancelam as opções não adotadas na morte, observa Bernard Pinsky, sócio da Clark Wilson LLP em Vancouver.
Os melhores planos conferem todas as opções não cobradas imediatamente após a morte. Cerca de 75% das principais empresas canadenses se enquadram no último grupo.
Cenário n. ° 1: opções canceladas na morte.
As opções que não se atribuem à morte são canceladas e seu valor é nulo, explica Katy Pitch, uma associada com o Grupo de impostos Stikeman Elliott LLP em Toronto. Portanto, do ponto de vista fiscal, não há nenhum benefício - ou perda - para informar o retorno do terminal do cliente.
Cenário # 2: Todas as opções adquiridas e exercidas antes da morte.
Diga todas as opções do seu cliente adquiridas três anos antes da morte. Ela exerceu todos eles, mas não descartou o estoque. Neste caso, não há regras especiais, observa Lisa Goodfellow, sócia da Miller Thomson LLP em Toronto. A situação é igual à de qualquer cliente que possui ações.
Cenário n. ° 3: as opções são automaticamente cobradas na morte, todas não exercidas.
Diga que todas as 100.000 opções do seu cliente não foram exercidas antes da morte. Seu plano diz que as opções são automaticamente adquiridas quando ela morre.
Seu retorno do terminal deve incluir esse benefício de emprego, observa Friedman. Calcule o benefício subtraindo o preço da opção da FMV das ações da empresa imediatamente após a morte. Então, se a negociação da ação em US $ 23 imediatamente após a morte e o preço da opção é de US $ 20, o benefício considerado é de US $ 300.000:
US $ 2,3 milhões (100,000 x $ 23) -
US $ 2 milhões (100,000 x $ 20)
Antes de 2018, a CRA permitiu que o executor de seu cliente aplicasse a dedução de 110 (1) (d) a essa $ 300,000, notas Pitch. Isso significaria imposto de renda devido em US $ 150.000. Mas as mudanças de regras pós-2018 tornaram menos claro que a dedução poderia ser usada dessa maneira; então os estados pagariam impostos sobre os $ 300,000 completos. Para tirar proveito da dedução de 110 (1) (d), seu cliente possuía as ações, o que significaria exercer opções antes da morte. [Nota: A CRA emitiu uma interpretação técnica (após o prazo de entrega), indicando que a agência, de forma administrativa, permitirá o uso da dedução de 110 (1) (d) nos casos em que um funcionário morra com opções que se castam com a morte.]
Pitch observa que não há rolamentos de cônjuge com opções de estoque. "Se você deixar tudo para seu cônjuge sobrevivente, a inclusão de renda [no retorno do terminal] [continuará] ocorrendo".
Cálculo do imposto.
Diga que um cliente exerce 25 mil opções uma vez que adquiriu. O valor justo de mercado (FMV) no momento do exercício é de US $ 27 por ação; O preço da opção é de US $ 20.
A FMV de 25.000 ações é de US $ 675.000 (25.000 × $ 27) eo preço de compra do seu cliente é de US $ 500.000 (25.000 × $ 20).
A receita de emprego tributável do seu cliente no exercício em que ela exerceu as opções incluirá $ 175,000:
$ 675,000 - $ 500,000 = $ 175,000.
O cliente não precisa vender as ações para provocar impostos. Exercitar uma opção através da compra de ações cria um benefício tributável.
Em vez de pagar impostos em $ 175,000, a seção 110 (1) (d) da Lei do Imposto de Renda diz que seu cliente pode reclamar uma dedução para que ela apenas pague o imposto na metade desse valor.
A dedução tem um resultado de ganho de capital, mas o benefício não é um ganho de capital; É a renda do emprego. Assim, as perdas de capital em outras posições não podem compensar o imposto desencadeado pelo exercício de opções de compra de ações.
Conselhos para executores.
Se o seu executor e a propriedade que ele é responsável é para a pessoa no Cenário n. ° 3, é seu trabalho exercitar as opções adquiridas e reivindicar uma quebra de impostos diferente se o FMV das ações tiver diminuído entre o tempo que ele calcula e paga o benefício tributável para o retorno do terminal, e o tempo que as opções são exercidas.
O cliente no cenário n. ° 3 tem um benefício tributável de US $ 300.000, com base em um preço de opção de US $ 20 e um VMO de $ 23. Mas, digamos, seis meses passam antes que o executor seja capaz de exercer as opções e vender as ações, e o FMV nesse ponto é de US $ 21 em vez de US $ 23.
O CRA oferece alívio nos termos da seção 164 (6.1) da Lei do Imposto de Renda. Uma vez que o benefício que realmente vale para a propriedade do falecido (com base no preço das ações de US $ 21) é menor que o benefício considerado tributado no retorno do terminal (com base no preço de US $ 23), o executor pode alterar o retorno e obter um reembolso parcial. CRA diz que você só pode fazer isso dentro de um ano após a morte; Depois disso, não há alívio.
Obtendo técnico.
Quando um cliente exerce opções e tem que denunciar o benefício em sua declaração de imposto, ela deve subtrair o valor que ela paga pelas ações do valor que ela teria pago se ela comprou a ação na FMV no dia em que as opções foram exercidas.
Mas as regras da CRA também dizem que o cliente precisa subtrair qualquer valor que ela pagou para adquirir as opções em primeiro lugar.
"Pagar para adquirir opções é menos comum", observa Michael Friedman, sócio da McMillan LLP em Toronto. Um exemplo seria onde os funcionários de uma empresa privada estão ansiosos para obter participação acionária. "O empregador diz:" Eu vou conceder a você, mas em troca desse direito, o que poderia ser muito valioso, eu quero que você me dê algo ".
Use-os ou os perca.
"Certifique-se de que o executor sabe que o plano existe", diz Friedman. "Você não quer que ele ou ela descubra vários anos depois".
Não é apenas uma questão de perder o crédito 164 (6.1), Pinsky explica: "As regras da TSX Venture Exchange dizem que, se alguém que tiver opções expirar, essas opções devem ser exercidas em um ano ou expiram".
Isso pode significar que a propriedade perderia centenas de milhares, até milhões.
A TSX não tem essa regra, mas muitas empresas listadas na TSX têm suas próprias regras que limitam o período de exercícios pós-morte, observa Friedman. "Freqüentemente, quando um funcionário falha, o empregador é sensível ao fato de que a propriedade precisa ser administrada, mas eles não querem ter que lidar com a propriedade por anos e anos".
Ele exorta os clientes a informar os executores a quem eles deveriam falar em suas empresas para detalhes do plano e instruções sobre como exercer as opções que ganham a morte. "Desta forma, eles não estão correndo tentando encontrar alguém" para ajudá-los a resolver a propriedade.
Opções de ações da empresa privada.
As regras tributárias para as opções de compra de ações em empresas privadas controladas canadenses (CCPCs) são ainda mais favoráveis ​​do que para as empresas públicas, observa Michael Friedman, sócio da McMillan LLP. Com opções de empresas públicas, há um benefício tributável quando seu cliente os exerce. Não é assim para CCPCs: o imposto é diferido até que seu cliente venda as ações. A exceção é a morte; nesse caso, o benefício deve ser reconhecido no retorno do terminal.
Outra diferença fundamental: um cliente não pode se qualificar para a dedução de 110 (1) (d) em opções da empresa pública se as opções estiverem dentro do dinheiro. Com as CCPCs, "você pode obter a dedução de 50% nas opções que estão dentro do dinheiro, desde que as ações tenham sido mantidas por dois anos".
Dean DiSpalatro é editor sênior do Advisor Group.

Opções de ações exercidas após a morte
Assunto: Opções de ações não qualificadas.
Data: Qui, 10 de fevereiro de 2000.
De: John e Roz.
Sou executor de uma pequena propriedade que possui opções de ações de empregados não qualificadas. Nenhum rendimento foi reconhecido ou imposto pago quando as opções foram concedidas. As opções são para uma empresa que é negociada publicamente. As opções têm um preço de subvenção de $ X eo valor de mercado da ação na data da morte foi de $ Y. O preço das ações é agora $ Z. Qual é o valor da renda que a propriedade reflete nos K-1 & # 8217; s para passar para os beneficiários se as opções de ações foram exercidas e vendidas hoje? Existe algum rendimento ordinário registrado quando exercido como teria sido o caso se o empregado estivesse vivo e / ou algum ganho fosse reconhecido quando ele fosse vendido?
Questão 2.
Data: Qua, 17 de maio de 2000.
Uma opção de ações não qualificadas não qualificadas para os herdeiros. Para fins de tributação do imposto federal, suas opções terão o preço do dia da morte? When the stock is distributed to his heirs what will be the basis for the stock?
Date: Mon, 12 June 2000.
Hello John, Roz and Kathy,
Of course, if the option is cancelled at death, it is not reported on Form 706 and there is no income tax issue.
Assuming the option is not cancelled at death, a non-qualified option keeps its character after death.
In the past, tax return preparers valued the options to report them on Form 706, the Federal Estate Tax Return, at the excess of the fair market value of the securities over the option price. This approach was based on Rev Rul 196, 1953-2 CB 178.
The Treasury regulations indicate there is another aspect of the option to be valued, called the option privilege. (Regulations Section 1.83-7(b)(3).) The option privilege represents the value of being able to participate in the future appreciation of the securities without having cash invested.
The IRS issued new guidelines for valuing compensatory stock options in Revenue Procedure 98-34. Under the Revenue Procedure, taxpayers may use a generally recognized option pricing model, such as the Black-Scholes model or an accepted version of the binomial model, when valuing compensating stock options for gift, estate or generation skipping transfer tax purposes.
Alternatively, you may find that hiring a business appraiser to value the options would result in a lower value, but this is an expensive alternative.
You should probably seek professional help relating to this matter. (Consider having the estate tax return prepared by a CPA or an attorney.)
The excess of the fair market value of a non-qualified stock option over the option price reported on an estate tax return is income with respect of a decedent, which means part of the estate tax may be deducted on the income tax return of the estate, trust or beneficiary when the option is exercised.
When the estate or beneficiary exercises the option, ordinary income is reported for the excess of the fair market value of the stock received over the option price (Regulations Section 1.83-1(d).)
Since the value of a non-qualified stock option reported on the estate tax return is income with respect of a decedent, it has no tax basis. (Tax basis = estate tax value – income with respect of a decedent.)
The tax basis of the stock received is the option price paid in cash plus the ordinary income reported. The holding period starts on the date of exercise.

Take Stock of Estate Planning Strategies for Options.
Stock options are no longer a perquisite reserved solely for corporate management and key employees. From closely held technology companies to Fortune 500 corporations, more employees are being afforded the opportunity to participate in potential appreciation of their businesses through the use of employer-provided stock options.
From the employer's perspective, stock options may be a relatively inexpensive way to reward employees for their hard work and loyalty to the employer. From the employee's perspective, stock options have become, in many instances, the most important part of their compensation package.
Despite the significant and growing attention employees devote to stock options, they spend very little time considering what might happen to their stock options in the event of their death. Estate planners must take into account their clients' stock options when formulating and implementing estate plans. Stock options present special income tax problems that must be dealt with in an estate plan. Options are not often transferable (except on the optionee's death) and when they are transferable, care must be taken to address the peculiar attributes of these options.
Fundo.
A stock option gives the option grantee (for our purposes, the employee) a legally enforceable right against the option grantor (the employer) to purchase stock at some time in the future at a specified price (the "strike price"). If the grantee, however, does not want to exercise the option and purchase or sell the property, the grantor has no legally enforceable right against the grantee to require the grantee to do so. Options come in two basic flavors:
A call option gives the option grantee a legally enforceable right against the grantor to purchase property. If the property subject to the call option has a value greater than the option price plus whatever consideration the grantee paid for the option (if any), the grantee typically will want to exercise the call option and purchase the property. Not surprisingly, if the value of the property subject to the call option, however, is below the option price, the grantee generally will not exercise the option.
A put option, on the other hand, gives the grantee a legally enforceable right against the grantor to sell the property. The desire to exercise a put option based on the fair market value of the underlying property is the opposite of call options. If the property subject to the put option has a value less than the option price, the grantee will generally exercise the put option and sell the property. If the value of the property has a value greater than the option price, the grantee generally will not exercise the option.
Two types of employee stock options receive special treatment under the Code:
Incentive stock options (ISOs).
Nonstatutory options granted under employee stock purchase plans (NQSOs, also referred to as nonqualified stock options).
Both ISOs and NQSOs have significant tax advantages, but there are many differences between them.
Under an ISO, the employer grants the employee an option to purchase stock at some time in the future at a specified price. As the value of the stock increases relative to the option price, the employee has the potential to recognize the appreciation in the option stock's value over the option price with preferential tax consequences.
Income taxation. The income tax consequences of ISOs are deceptively simple and could lull the employee into a false sense of security. In general, the employee does not recognize taxable compensation income at the time the option is granted, becomes vested, or even exercised. 1 On exercise of the option, the employee, however, has to take into consideration the spread between the option price and the stock's fair market value as an "item of adjustment" for purposes of the alternative minimum tax (AMT). An employee who is subject to AMT in the year the ISO is exercised, however, may be entitled to a tax credit against the employee's regular income tax in some later year when not subject to AMT.
Thus, unless the employee incurs AMT, the employee has a taxable event only on the later sale or disposition of the option stock, using the original option strike price as the employee's basis for determining gain. In addition, subject to the holding requirements discussed below, the employee recognizes long-term capital gain on such sale or disposition.
For the ultimate sale of the stock to be treated as a sale of a long-term capital asset, (1) the employee must hold the stock for at least one year after the date the stock was transferred to the employee and (2) the disposition cannot be before two years after the date the option was granted. 2 If the employee engages in a "disqualifying disposition" of the stock (i. e., a disposition that violates either the one - or two-year rules), the employee recognizes ordinary income (i. e., compensation) in the year of disposition to the extent of the lesser of:
The fair market value of the stock on the date of exercise minus the strike price.
The amount realized on the disposition minus the strike price.
The grant of an ISO by the employer typically does not create any tax consequences for the employer because the employer does not receive a tax deduction when it grants the option or when the option is exercised by the employee. 3 If the employee, however, violates the one - or two-year rules in a disqualifying disposition, the employer may deduct the amount of ordinary income recognized by the employee attributable to the disqualifying disposition. 4.
Exemplo. Corporation C adopts an ISO plan on 1/1/00 granting each employee the option to purchase 100 shares of C stock for $100 per share (the stock's fair market value on 1/1/00) prior to 12/31/05. Ellen, an employee of C, exercises her option to acquire 100 shares of C stock on 7/1/00 when each share of C stock has a value of $110. On 7/1/05, Ellen sells all of the stock acquired through the exercise of the ISO to Paul for $150 per share.
Ellen does not recognize any income (assuming AMT will not be triggered) on the grant or exercise of the option. When Ellen sells the 100 shares to Paul on 7/1/05, she realizes and recognizes $50 of long-term capital gain per share. C is unable to take a corresponding deduction.
ISO requirements.
Very strict rules must be complied with to qualify for the beneficial ISO tax treatment. For an option to qualify as an ISO, the recipient must be an employee of the granting corporation (or a related corporation) at all times beginning on the date of the option grant until three months from the date of exercise (the three-month period is extended to 12 months if the employee stopped working because of a disability). 5 Consequently, the employee must exercise any outstanding ISOs within three months after leaving the employment of the granting employer.
If an option recipient holds a stock option at his or her death, it can qualify as an ISO only if the recipient was employed by the granting corporation on the date of the recipient's death or within the three months immediately preceding the date of death. If the employee was employed on the date of his or her death, there is no statutory requirement that the estate or heirs exercise the ISO within three months of the date of the employee's death. nnISOs must also meet the statutory requirements under Sections 422(b) and (d). Some of these requisites are:
The option must not be transferable by the employee other than by will or the laws of descent and distribution and must be exercisable during the employee's lifetime only by the employee. The ISO agreement should give the ISO employee the ability to specifically designate the employee's beneficiary. The absence of any such provision or any specific designation would prevent the option from being an ISO. In addition, in the event the employee becomes disabled, the legal representatives of the employee should be able to exercise the option on the employee's behalf. 6 The employee's estate is also permitted to exercise the ISO.
As discussed above, an employee generally incurs favorable tax results when selling stock acquired through the exercise of an ISO unless the employee violates the one - or two-year rule. This is an especially important consideration for an estate planner to take into account to prevent the inadvertent--and usually avoidable--triggering of ordinary compensation income by implementing a plan that will not cause a disqualifying disposition. In general, a "disposition" of ISO stock is defined as any sale, exchange, gift or transfer of legal title, subject to the following exceptions under Section 424(c):
A transfer from a decedent, who held ISO stock, to an estate or a transfer by bequest or inheritance.
An exchange of the ISO stock in a nonrecognition transaction, such as a tax-free reorganization or stock-for-stock exchange.
A pledge or hypothecation of the ISO stock (but if the stock is actually transferred to another pursuant to such pledge or hypothecation, the transfer is considered a disposition; therefore, ISO stock should not be used as security).
Any transfer of ISO stock between spouses or incident to a divorce (and the spouse who receives the stock steps into the shoes of the original employee).
The exercise of an option by an individual if such option is taken in the name of the individual and another person jointly with the right of survivorship, or is subsequently transferred into such joint ownership. A change in joint owners, however, is considered a disposition. The transfer of ownership resulting from the death of one of the joint owners of the stock is not considered the transfer of ownership of the ISO stock. If the joint ownership is terminated other than on the death of one of the joint tenants, the termination of joint ownership is a disposition, except to the extent that the termination results in the employee reacquiring full ownership of the shares.
A transfer of ISO stock by an insolvent individual to a trustee in bankruptcy, a receiver, or any other similar fiduciary in any proceeding under the Bankruptcy Code or any other similar insolvency proceeding.
Despite the laundry list of exceptions to the definition of "disposition," the estate planner must note that there are no exceptions for gifts of ISO stock. Thus, a gift of ISO stock triggers capital gain (or potentially ordinary income if a disqualifying disposition occurs under Section 422(a)(1)). This may make ISO stock unattractive for gifts from one generation to the next.
Stock options that do not meet the requirements for ISOs are nonqualified stock options and are governed by Section 83. Because NQSOs do not have to meet the requirements for ISOs, employers and employees are afforded much greater flexibility in implementing an NQSO plan.
Income taxation . The tax consequences of NQSO grants are not as straightforward as with ISOs. They too include tax traps. The first question to answer in determining the tax treatment of an NQSO is whether the NQSO has a "readily ascertainable market value" (RAMV). An option generally would have an RAMV only if either:
The option itself is traded on an exchange. The option is immediately (a) exercisable, (b) transferable, (c) not subject to any restrictions that have a significant effect on the option's value (i. e., forfeitability) and (d) the fair market value of the "option privilege" can be readily determined.
If the NQSO has an RAMV, the employee has ordinary income at the time of grant equal to the difference between the option's fair market value and any consideration the employee paid for the option. NQSOs typically do not have an RAMV. Therefore, they rarely cause the employee to incur an ordinary income tax liability at the time of grant.
Typically, the employee recognizes, as ordinary income, the difference between the strike price and the fair market value of the stock when the option is exercised. This result may be disadvantageous to an employee who desires immediate taxation of the option to ensure that any future appreciation will be taxed as a capital gain. The employer is entitled to a deduction equal to the spread in the year the employee recognizes the income.
If stock acquired through exercise of an option is subject to a substantial risk of forfeiture (i. e. subject to a vesting schedule), income taxation is deferred until the risk of forfeiture is removed or lapses. If the stock is not freely transferable because of securities law restrictions, taxation may be deferred until the restrictions lapse. Typically, employers impose restrictions to encourage employees to remain with the employer by offering significant benefits if the restrictions are satisfied.
Employees who hold restricted property (such as restricted stock received through the exercise of an option) have the ability to close the compensation element in a restricted property transaction at the time the property is transferred (e. g., when stock is acquired on the exercise of an option), thus giving employees the opportunity to limit their ordinary income from the transaction by making a Section 83(b) election.
The Section 83(b) election is not available when the option is granted because an option is not a transfer of property. The Section 83(b) election may be made on the exercise of an option to acquire stock that is subject to substantial risks of forfeiture.
If the Section 83(b) election is made, the employee is required to recognize as ordinary income any difference on the date the property is transferred between the fair market value and the amount paid for the property. A "painless" election can be made to close the compensation element in a restricted property transaction, even if there is no difference between the fair market value and the amount paid for the property. 9 Thus, any appreciation in the property (i. e., the restricted stock) after the date of exercise is converted into potential capital gain income. If on the date of exercise the fair market value of the stock is the amount paid for it pursuant to the exercise of the option, and the employee makes a Section 83(b) election, the employee will not recognize any ordinary (or capital gain) income.
Any realized gain on the ultimate sale of the stock will then receive capital gain treatment. If the stock is subject to any type of restriction, the estate planner should inform the client of the availability of the Section 83(b) election if one can still be timely made.
Exemplo. Corporation C adopts an NQSO plan on 1/1/00 granting each employee the option to purchase 100 shares of C stock for $1 per share (the fair market value of C's stock) prior to 12/31/05. On the date of grant, the option does not have an RAMV. Edward, an employee of C, exercises his option to acquire 100 shares of C stock on 7/1/01, when each share of C stock has a value of $110. The NQSO plan provides that in the event an employee ceases to be employed within three years after exercising the option, C will repurchase the stock for $1 per share.
Edward does not recognize ordinary income on the grant of the option because the option does not have an RAMV or on exercise of the option because the stock is subject to a substantial risk of forfeiture. If, however, on the exercise of the option, Edward makes a timely Section 83(b) election, he will recognize $109 per share of ordinary income. If Edward sells the stock for more than $110 per share (after having held it for longer than one year), he will recognize capital gain.
The taxpayer's name, address, and identification number.
A description of the property that is the subject of the election.
The date of the transfer and the calendar year involved.
The nature of the restrictions attached to the property.
The fair market value of the property.
The amount paid (if any) for the property.
A statement that copies of the election have been filed with the employer and, if necessary, with the transferee of the property.
Gift-giving strategies. A significant advantage of NQSOs over ISOs in estate planning is that NQSOs can be more flexible. Although NQSOs are likely to be subject to nontransferability restrictions before exercise, such restrictions are not required. Thus, unlike ISOs, NQSOs may be the subject of a gift-giving program. In addition, the stock acquired through the exercise of the option does not have to be held for a specified period of time (unlike the special one - and two-year rules for ISOs) to preserve capital gain treatment on the spread at disposition. (Of course, the general more-than-one-year holding period requirement must be met for long-term capital gain treatment.) Thus, the stock acquired through the exercise of an NQSO can also become the subject of a gift-giving program.
Unlike ISOs, NQSOs do not have any statutory restrictions, but the NQSO plan must permit or be amended to permit the options to be transferred to family members. The employee may then be able to transfer an NQSO to the employee's children (or in trust for them) when the gift tax value of the NQSO is substantially lower (see "Valuation of options," below) and, for a low gift tax transfer cost, remove substantial potential appreciation in the underlying stock from the employee's estate.
Embargo. An employee who makes a gift of an NQSO does not shift the compensation income from the exercise of the NQSO to the transferee, even though it would be the transferee who ultimately exercises and gets the benefit of the NQSO. This liability, however, would reduce the employee's estate. In any event, the employee must recognize that he or she will bear this tax burden and, therefore, must plan for this "phantom income" on the exercise by the donee. Gifts of options to charities may result in favorable tax benefit/detriment timing in that the donor can get a charitable deduction in the year of gift, but may have the income recognition event in a later year when the options are exercised. The income tax liability will also help to reduce the donor's estate.
Rev. Rul. 98-21. Until the issuance of Rev. Rul. 98-21, 10 many issues regarding the tax treatment of stock options were uncertain. One such issue was the effective date of an NQSO gift. According to Rev. Rul. 98-21, the gift of a compensatory NQSO that is conditioned on the additional services of the employee is a completed gift under Section 2511 on the later of:
The time when the donee's right to exercise the option is no longer conditioned on the performance of services by the transferor.
According to this Ruling, the rights the employee possesses in the NQSO do not acquire the character of enforceable property rights susceptible of transfer for federal gift tax purposes before the employee performs the required services. Therefore, a completed gift of an NQSO can be made only after the employee has completed the additional required services making the right to exercise the option binding and enforceable. The Ruling further provides that if an option becomes exercisable in stages, each portion of the option that becomes exercisable at a different time is treated as a separate option for applying the completed gift analysis.
The implication of Rev. Rul. 98-21 is that the gift of an unvested NQSO must be valued on the date the vesting occurs. Previously, it was believed that nonvested options could be given with a minimal value and thus enable the donor to shift all future growth to the donee without incurring substantial gift tax. The IRS essentially closed this planning technique because the gift tax cost of transferring unvested options to family members would presumably increase as the value of the stock increases during the delay until the gift is deemed to be complete.
Thus, a valuation expert may have more difficulty justifying a lower valuation since less of an argument could be made with regard to the future value of the company's stock, volatility of the marketplace, or the level of interest rates. Therefore, from an estate-planning perspective, it may be impractical to use unvested stock options in a gift-giving program.
Valuation of Options.
Rev. Proc. 98-34 indicates that no discount can be applied to the valuation produced by the option pricing model. Retaining an experienced valuation expert is essential to support any type of gift-giving program, especially when the property being valued is a stock option. The valuation expert must ensure that the option pricing model takes into account, as of the valuation date, the following six factors:
O preço de exercício da opção. The expected life of the option. The current trading price of the option. nn The expected volatility of the underlying stock. The expected dividends on the underlying stock. The risk-free interest rate over the remaining option term.
Effect of employee's death.
NQSOs. An NQSO generally provides that the option will pass to the estate or heirs of the employee after the employee's death (or any manner the employee and employer contractually agree on) and that the transferee may exercise the option under terms similar to those governing exercise of the option by the employee. The income taxation of the NQSO of a decedent ultimately depends on whether the option was taxed at grant, and whether the option is restricted property.
If the employee dies holding an option that was taxed at grant, the transferee would take the option with a basis equal to its fair market value on the date of the employee's death. Because the compensation income was taxed to the employee, no income in respect of a decedent (IRD) is inherent in the option. If the transferee exercises the option, the stock received on exercise apparently must be held for the requisite long-term holding period before it is eligible for long-term capital gain treatment.
If the employee dies holding an option that was not taxed at grant, the compensation element remains open. When the transferee engages in a transaction with respect to the option that would close the compensation element in the hands of the employee (i. e., exercise or disposition), compensation income is produced for the transferee. The transferee is deemed to step into the employee's shoes for purposes of taxing the compensation income inherent in the option. Because IRD is inherent in the option, the option's basis in the transferee's hands is not stepped up to its date-of-death value.
If the employee exercises an NQSO not taxed at grant and receives stock subject to transferability and substantial risk of forfeiture, absent a Section 83(b) election, the compensation element in the transaction remains open until those restrictions lapse. Depending on the terms of the NQSO plan, the stock may:
Pass to the estate or heirs free of restrictions.
Be forfeited as a result of the employee's death.
Pass into the hands of the estate or the heirs subject to the same restrictions.
If the estate or heirs remain subject to the same restrictions, the tax consequences are the same as the option not taxed at grant. If the restrictions lapse because of the employee's death, the lapse will generate compensation income to the transferee. If the stock is forfeited because of the employee's death, the rules governing the forfeiture of restricted property to the employee should govern this forfeiture. Any gain should be IRD to the estate or the heirs to whom the proceeds flow. If the forfeiture produces a loss, the ordinary loss generated should be available to the decedent's estate or heirs to whom any proceeds of the forfeiture flow.
ISOs. The right to exercise an ISO and receive the related favorable tax treatment does not need to be lost if proper steps are taken. The ISO plan may provide that it can be exercised by the estate of the employee or by anyone who has acquired the ISO due to a bequest or inheritance from the employee. As long as the option qualified as an ISO in the hands of the employee, the estate or heirs will receive the same tax treatment on exercise of the option. If the estate or heirs, however, make a disqualifying distribution of the ISO stock, they will recognize taxable income.
Additional estate planning considerations.
Unexercised options can be bequeathed to a named beneficiary, but the estate planner should review the option grant to see if it provides for automatic transfer at death to particular employee beneficiaries (or provides for the filing of a beneficiary designation with the employer). Pecuniary bequests should not be funded with NQSOs because immediate IRD may be triggered on the ordinary income component inherent in the NQSO. Bequests to charities, on the other hand, result in the ordinary income being recognized by the charity (a tax-exempt entity). 13 Thus, NQSOs are especially good candidates for charitable bequests.
The required holding period and the employment requirements are waived for stock acquired pursuant to an exercise of an ISO by the decedent's successors.14 The holding period waiver, however, does not affect the characterization of gain from a later sale of the stock as long-or short-term capital gain. The holding period for long-term capital gain purposes begins on the date the option is exercised.15 The employment requirement waiver does not apply if the decedent was not employed by the employer at the employee's death or within the previous three months.
The estate planner should ensure that the executor and trustee (as well as the agent under any power of attorney) has sufficient authority and funds to exercise the ISOs and NQSOs. The liquidity concerns involved with NQSOs are somewhat greater than with ISOs because an NQSO triggers tax when exercised, as contrasted with an ISO, which is not taxable until the stock is sold.
The fiduciaries should be granted specific authority to exercise stock options. The fiduciaries should also be given authority to borrow funds necessary to exercise the options and to pledge the stock as collateral. In addition, the estate planner should consider whether the fiduciaries should, to the maximum extent permitted by local law, be exempted from any duty to diversify investments, when the estate is comprised of either ISOs and NQSOs.
Fiduciaries may be restricted by Regulation U of the Securities and Exchange Act of 1934, as well as other rules, in borrowing funds to exercise the options, if the stock is closely held or not readily susceptible to valuation, if the borrowing is secured solely by the stock. Consequently, the estate planner needs to consider the limitations imposed under securities law.
Lastly, the fiduciary must ascertain and keep track of all option expiration dates. The expiration of an unexercised option could result in serious fiduciary liability.
Conclusão.
6 Rev. Rul. 62-182, 1962-2 CB 136.
9 See Alves, 734 F.2d 478 54 AFTR2d 84-5281 (CA-9, 1984).

Opções de estoque de navegação e outros direitos de estoque.
Opções de estoque de navegação e outros direitos de estoque.
by Darryl Ott and Robert Lew.
Darryl D. Ott of Morgan, Miller & Blair in Walnut Creek, California, has been involved with wealth transfer planning for high net worth individuals for 30 years, and with charitable planned giving for over 10 years. He is a former member of the board of directors and past president of the Northern California Planned Giving Council, and has been a presenter for NCPG, and other national and local organizations on a variety of wealth transfer topics. Ott has a JD degree from the University of California, Hastings College of the Law, San Francisco, and is a Certified Specialist of Taxation Law with the California State Bar.
Robert Lew is the owner of Planning and Financial Advisors, a firm specializing in estate planning and insurance services located in San Francisco, California. Prior to his current position, he worked for over seven years for nonprofit organizations such as the American Red Cross. Lew has been active in planned giving for over eight years. He is a former member of the board of the Northern California Planned Giving Council and currently serves on the board of the National Committee on Planned Giving.
The purpose of this article is to provide assistance to charitable gift planners and other professional advisors in understanding the very complex income tax rules and the other legal requirements of incentive stock options, non-qualified stock options, and restricted stock. In addition, it is important for charitable gift planners to be exposed to specific case studies that illustrate the means of integrating charitable planned gifts with these important wealth building tools, and to understand how options and other stock rights fit into the overall wealth transfer planning for these very important potential donors.
There is one assumption that underlies the entire discussion regarding stock options. The assumption is that on the date of the exercise of the option, the fair market value of the stock of the company is greater than the exercise price specified in the option. While there may be some circumstances when a grantee of an option might want to exercise a stock option if the exercise price is greater than the fair market value of the stock, it is extremely unlikely.
All references in this article to specific tax and legal requirements for the stock options and the restricted stock are limited to those required by federal laws. The tax and legal requirements for any state should be referred to specifically.
Definições.
2 and 1 Rule. The "2 and 1 Rule" is a rule that only relates to incentive stock options and that is applicable only after the incentive stock option has been exercised, and where the grantee-employee is the owner of the stock of the employer. In order for the grantee-employee to be able to report the gain on the sale of the stock as capital gain, and not as ordinary compensatory income, the 2 and 1 Rule requires the grantee-employee to own the stock prior to the sale for a period that is the longer of either two years after the date of the grant of the incentive stock option, or one year after the date of the exercise of the incentive stock option. This rule has very important implications for the ability of the grantee-employee to use any planned giving tools. Moreover, the 2 and 1 Rule is no longer applicable after the death of the grantee-employee.
Imposto mínimo alternativo. The calculation of "alternative minimum tax income" (AMTI) is entirely distinct and apart from the calculation of taxable income for regular income tax purposes. AMTI is computed in the same way as taxable income for regular tax purposes, except: 1) certain items of income and deductions used in the regular taxable income are adjusted; and 2) certain items of preference are added back to the taxable income to arrive at the AMTI. The tentative "alternative minimum tax" (AMT) is equal to 26% of the alternative minimum tax base up to $175,000 and 28% of the alternative minimum tax base over $175,000. The alternative minimum tax base is the AMTI reduced by various exemption amounts. The AMT so calculated is then compared to the taxpayer's regular income tax, and if the AMT is greater, the AMT is the amount that must be paid for that taxable year. For purposes of this article, the amount by which the fair market value of the shares acquired at the time of the exercise of an incentive stock option exceeds the exercise price, is an item of tax preference that must be included in the AMTI.
Base. Exercise price plus the amount realized as income at exercise.
Compensatory stock options and compensatory restricted stock. The terms "compensatory stock options" and "compensatory restricted stock" mean any options for the acquisition of stock of a company granted either to an employee, such as incentive stock options, or to employees, directors, and consultants, such as non-qualified stock options, and any restricted stock issued to employees of a company as a form of compensation. These terms are very generic. These compensatory stock options must be distinguished from "investment options," such as those traded on the Chicago Board of Options Exchange, since the income tax effects with investment options are very different from those with compensatory options.
Disposições de desqualificação. A "disqualifying disposition" is a reverse application of the 2 and 1 Rule. If, after the exercise of the ISO, the stock is sold, exchanged, given, or otherwise transferred within two years of the date of the grant of the ISO, or within one year of the date of the exercise of the ISO, the employee must report the "gain" (the difference as of the sale date between the sales proceeds and the strike price) as ordinary compensation income and not as capital gain.
Data de exercício. The "exercise date" of the option is the date of the delivery of the exercise of the option.
Exercise of option. The "exercise of option" is generally a written notification to the company by the grantee of the option of his or her intention to acquire a specified number of shares of stock of the company pursuant to the grant of the option.
Preço do exercício. The "exercise price" is the price that the grantee must pay to the company on the exercise date to acquire the stock of the company. The exercise price must be specified in the grant of the option. Same as "Strike strike Priceprice."
Data de concessão. The "grant date" is the date that the company gives (grants) the option to purchase stock in the company, whether as an incentive stock option or as a non-qualified stock option, to the grantee. The rights of the grantee to acquire the stock are governed by the terms of the grant of the option.
Grant of option. The "grant of option" is generally a written document given to the grantee of the option that specifies all of the terms of the option such as the exercise price, the term of the option, the vesting schedule, the number of shares of the company's stock that may be acquired, whether or not the option is transferable, if it is transferable, to whom it may be transferred, and whether or not the option may be exercised by a designated beneficiary after the date of the grantee's death.
Opções de estoque de incentivo. An incentive stock option (ISO) is an option issued pursuant to a plan adopted by the employer corporation that conforms to all of the statutory requirements of Internal Revenue Code (IRC) §§ 421 through 424 when granted. Also known as statutory options.
IRC § 83(b) election . An "IRC § 83(b) election" is made with respect to restricted stock, and in some very special circumstances might be made as of the date of the exercise of an incentive stock option to attempt to limit the alternative minimum tax. The election, which must be filed with the IRS for the taxable year during which the employee first receives the transfer of the restricted stock, allows the employee to report a lesser amount of ordinary compensatory income during this year of receipt of the stock, with the hope that in future years, when the employee sells the stock at a higher value, the employee will then be able to report this appreciation as capital gain income rather than as ordinary compensatory income.
Minimum holding period. The amount of time that an employee must hold shares received upon exercise of an ISO to obtain favorable statutory treatment, namely: 1) two years from the date the option was granted; and 2) one year from the date the option was exercised.
Opções de estoque não qualificadas. A non-qualified stock option (NQSO) is an option to acquire stock of a company that does not, for any one of a number of reasons, satisfy all of the IRC requirements for incentive stock options. Also known as non-statutory options.
Opção. The term "option" as used in this article is the right of an individual to purchase, for a stated price, a specified number of shares of stock from a company by virtue of an offer of the company that continues for a stated period of time.
Estoque restrito. Restricted stock is stock that has any contractual or securities law restrictions imposed on the transfer of shares.
Data de venda. The "sale date" is the date that the owner of the stock of the company (whether as a result of the exercise of an option, or the acquisition of restricted stock) actually sells the stock and disposes of his or her interest in the stock. The sale date is sometimes referred to as the disposition date.
Vesting. "Vesting" is the point in time when the grantee of an option (pursuant to the terms of the grant of the option) or the owner of restricted stock (in accordance with the terms of the restricted stock agreement) becomes indefeasibly entitled to acquire (with an option) or to retain ownership of (with restricted stock) the stock of the company. The vesting is generally spread out over a period of years at increasing percentages, but there are no particular legal requirements as to how quickly the rights to the stock must vest.
Opções de ações de incentivo.
An incentive stock option (ISO) is an option issued pursuant to a plan adopted by the employer corporation that conforms to all of the statutory requirements of IRC §§ 421 through 424 when granted. Some of the basic requirements are that: 1) the shareholders must approve the plan; 2) the ISO must be granted to an employee of the company (not a director or consultant) and, basically, the individual must remain an employee through the date of the exercise; 3) the exercise (strike) price for the stock must equal or exceed the fair value of the company's stock as of the date of the grant; 4) an option must be granted within 10 years of the date of the adoption of the plan and must be exercised within 10 years of the date the option is granted; 5) the fair value of the ISO stock that is first exercisable during a year cannot exceed $100,000 based on the value of the company's stock as of the date of the grant; and 6) an individual already owning more than 10% of the company's stock must pay at least 110% of the fair value as the exercise (strike) price and the option must expire within five years as compared to 10 years for lesser shareholders. In accordance with the provisions of IRC § 422, an ISO is not transferable. Due to all of these requirements and restrictions, ISOs themselves (as opposed to the stock acquired by the exercise of the ISO) do not lend themselves to much, if any, prior wealth transfer planning, income tax planning, or charitable gift planning.
There are no income tax consequences to the grantee-employee of the option as of the date of the grant of the option. Generally, there are no regular income tax effects with ISOs as of the date of the exercise of the option by the grantee-employee. However, the difference, as of the date of the exercise of the ISO, between the fair value of the stock, as of the date of the exercise, and the strike price for the stock is an item of preference for purposes of the alternative minimum tax (AMT) calculations. The possibility of the imposition of the AMT can create a very difficult cash management situation for the grantee-employee after the exercise of the ISO, and, therefore, after the acquisition of the stock because the donor may have AMT to pay to the IRS as a result of his or her exercise of the ISO, but may not have any cash with which to pay the AMT. An obvious solution to this cash dilemma is to sell some of the stock acquired by the exercise of the ISO at least up to an amount that creates regular tax equal to the AMT. But such sales of too much of the stock would then lead to other adverse income tax consequences.
One of the other requirements of an ISO is to enable the grantee-employee of the ISO (and now owner-employee of the stock of the company) to obtain long-term capital gain treatment upon a sale of the stock known as the "2 and 1 Rule." The 2 and 1 Rule will permit the owner-employee to report the gain on the sale of the stock as capital gain if, after the exercise of the ISO, the stock is not sold within two years of the date of the grant of the ISO, or not within one year of the date of the exercise. A disposition (whether a sale, exchange, gift, or other transfer of legal title) of the stock that occurs after the expiration of the 2 and 1 Rule time periods is referred to as a qualifying disposition.
A disqualifying disposition is a reverse application of the 2 and 1 Rule. If, after the exercise of the ISO, the stock is sold, exchanged, given, or otherwise transferred within two years of the date of the grant of the ISO, or within one year of the date of the exercise of the ISO, the employee must report the "gain" (the difference, as of the sale date, between the sales proceeds and the strike price) as ordinary compensation income and not as capital gain. The difference in federal income tax rates between those for ordinary income and those for capital gains can be significant. The difference in the combined rates for federal income taxes can be as much as 19%. Needless to say, if the owner-employee needs the cash to pay the AMT, or otherwise is just wanting to diversify, or simply feels that the stock has reached its peak in value, the owner-employee's advisors, including gift planners, must understand and be able to explain the difference in the income tax treatment to the owner-employee. There are a few limited exceptions to the disqualified disposition rules, such as the transfer of the stock by a decedent by bequest or other form of inheritance. However, it is this 2 and 1 Rule that causes the owner-employee of the stock to report any gain as ordinary income on a transfer by gift of his or her ISO-created stock to a charitable remainder trust before the satisfaction of the 2 and 1 Rule.
There are now a multitude of methods related to the exercising of an ISO that in some instances provides some income tax and cash flow assistance to the grantee-employee in the exercise of the ISO, and the ownership of the stock of the company resulting from the exercise of the ISO. These methods are generally variations that provide financing assistance to the grantee-employee. A detailed explanation or analysis of these methods is clearly beyond the scope of this article. However, some of the methods are: 1) using stock of the employer to pay for the exercise of the ISOs; 2) under certain limited circumstances exchanging ISO stock for similar company stock; 3) granting a "reload" option when company stock is used to pay for the exercise price for the company stock then being acquired; 4) providing tandem stock appreciation rights (SARs) so long as the SARs meet certain requirements; and 5) providing financing through a broker for a "cashless exercise" of the ISOs.
Following the death of the grantee-employee, if the ISO plan permits the beneficiaries of the grantee-employee to exercise the ISO, then as long as the option was an ISO as of the date of the grantee-employee's death, the beneficiaries of the ISO will receive the same tax treatment on the exercise of the option as would have been realized by the grantee-employee. The transfer of the ISO to the beneficiaries, or the transfer of the stock of the employer to the beneficiaries that has not yet satisfied the 2 and 1 Rule is not a disqualifying disposition of the stock. Moreover, the estate or heir who receives the ISO does not have to comply with the 2 and 1 Rule at all with respect either to ISO stock received by the beneficiaries from the grantee-employee, or stock received by the beneficiaries following their exercise of the ISO. The death of the grantee-employee eliminates the need to comply with any of the ISO holding period requirements. However, the date of death of the grantee-employee will be the starting date for the measurement of the capital gain holding periods that will be used to determine whether any post-death appreciation is either short-term or long-term capital gain.
In addition, the ISOs receive a full step up in basis just like any other asset of a decedent, and no ordinary income or capital gain will be reportable on the stepped-up basis portion on a later exercise of the ISOs or disposition of the ISO stock by the beneficiaries. Also, due to this step up in basis of the ISO, the death of the grantee-employee eliminates the occurrence of any AMT on the subsequent exercise of the ISO by the beneficiaries, at least with respect to the pre-death bargain element in the ISO.
The fair market value of the ISO, as of the date of the death of the grantee-employee, is an asset that will be includable in the taxable estate of the grantee-employee. The fair market value of an ISO is basically the difference between the fair value of the stock of the company, as of the date of the death of the grantee-employee, and the strike price. Generally, the plans for the ISOs permit the recipient from the grantee-employee to exercise the ISOs in the same manner as the grantee-employee, and to receive the same income tax treatment on exercise, and on any subsequent disposition as would have applied to the grantee-employee if he/she would have lived. If the deceased grantee-employee was employed by the employer as of the date of his or her death, there is no statutory requirement that the recipient must exercise the ISO within three months of the grantee-employee's death.
Even though a transfer of an ISO upon the death of the grantee-employee is permitted by the statutes and is not a disqualifying disposition, and even though the recipient of the ISOs, following the death of the grantee-employee, is entitled to the special income tax reporting rules discussed above as would have been available to the grantee-employee, the recipient is also still subject to the same reporting requirements as would have applied to the grantee-owner. And, in addition, the ISOs still are not otherwise transferable by the recipient. So, the limitations on the planning possibilities for the recipient and on the transfer of the ISOs to charities still apply. Again, it is only after the exercise of the ISO, and the ownership of the underlying stock itself, that traditional gift planning possibilities will arise. In fact, the net effect of all of the post-death rules for ISOs is that the ISO stock is to be treated by gift planners no differently from any other asset in an estate of a decedent.
Opções de ações não qualificadas.
A non-qualified stock option (NQSO) is an option to acquire a company's stock that does not, for any number of reasons, satisfy all of the IRC requirements for incentive stock options. Unlike incentive stock options, the issuance of an NQSO is not limited just to employees of the company, but they may be granted to employees, directors, and consultants to the company. Also, unlike the requirements for incentive stock options, NQSOs can be transferable at any time, either before or after exercise of the option if the plan adopting the NQSOs or the grant of the option permits the transfer. This transfer possibility does provide some additional planning opportunities for allied professionals and charitable gift planners. IRC § 83 is involved in the analysis of the income tax effects of non-qualified stock options.
Generally, the grantee of the NQSOs will not recognize taxable income on the date of the grant of the option. The tax reason is simply that, pursuant to the provisions of IRC § 83, the option does not have a "readily ascertainable fair market value." In effect, the compensatory aspects of the option are held "open" until the option is exercised. Since, at the time of the grant of the NQSO there is not a tax event, the income tax effect in the future is to treat the appreciation in the value of the property underlying the option between the date of the grant and its exercise as compensation income and not capital gain. Under these circumstances, the grantee of the NQSO would generally want to treat the value of the option, as of the date of its grant, as compensation income rather than as of the date of the exercise of the option. The reason for this preference is that the amount of ordinary compensation income that would be reportable, as of the date of the grant, would generally be less than the reportable ordinary compensation income as of the date of the exercise of the option. And, therefore, the ultimate capital gain that would be reported upon the eventual sale of the stock would be greater.
However, the IRC specifically and purposefully makes it difficult, for this very reason, for the grantee of the NQSO to report any ordinary compensation income, as of the date of the grant, of the NQSO. If an NQSO is not actively traded on an established market, which is highly likely, then IRC § 83 has four rigorous tests that must be met for the NQSO to have a readily ascertainable fair market value. The effect of these requirements is to force the taxation of the value of the NQSO to the date of its exercise. However, from a non-tax standpoint, an NQSO is still a very attractive compensation device for executives and employees of a company. The options are generally granted without requiring the grantee to make any payment for it as of the date of the grant; the income tax effects are delayed, and the NQSOs also offer significant upside if the company "takes off" as is generally expected.
On the date of the exercise of the NQSO, the grantee will be required to recognize ordinary compensation income in an amount equal to the excess of the fair market value of the stock, as of the date of the exercise, over the exercise (strike) price paid for the stock on such date. There are issues from the company's standpoint concerning the company's obligations to report this inclusion of income by the grantee to the government and, therefore, the obligation of the company to withhold income taxes from the grantee as of the date of the exercise of the NQSO.
Unlike incentive stock options, there is not any concept of a "qualifying" or "disqualifying" disposition of the stock. Following the exercise of the NQSO and the acquisition of the stock of the company and, additionally, the reporting of the ordinary compensation income at such time, the stock will be treated in the same manner as any other investment stock of the grantee-owner. The holding period for the determination of future capital gain recognition (more than 12 months) commences as of the date of the exercise of the NQSO. The basis of the stock acquired by the exercise of the NQSO is the amount paid by the grantee for the stock (the strike price) plus the amount of the ordinary compensation income reported by the grantee as of the date of the exercise. As a result, the basis of the stock is generally its full fair market value as of the date of the exercise of the NQSO. So, on a future disposition of the stock by the grantee-owner, any increase in value of the stock over its value, as of the date of the exercise of the NQSO, will be taxed as capital gain income. And, if the disposition occurs more than 12 months after the date of the exercise of the NQSO, then the appreciation will be treated as long-term capital gain, and will qualify for taxation at the lower capital gain income tax rates.
Due to the fact that NQSOs can be transferred if the plan adopting the NQSOs, or the grant of the option permits the transfer, this possibility opens up some charitable and non-charitable planning opportunities. Most importantly for the planned giving community, the IRS, in private letter ruling (PLR) 200002018 (and subsequently reinforced in PLR 200012076), reached several favorable conclusions concerning a transfer by a decedent of NQSOs, to a charitable organization at the time of her death. The IRS concluded that the decedent's estate would be entitled to a full charitable deduction for the fair market value of the NQSOs passing to the charity, and that when the charity exercises the NQSOs, the charity and not the estate of the decedent will be required to report the income.
Also in this PLR, the IRS concluded that the transfer of the NQSOs, and the reporting of the income upon the exercise of the NQSOs, were "income in respect of a decedent," which is the same conclusion used for the disposition of qualified retirement plan accounts and individual retirement accounts. See case study 3 for a discussion of the gift planning possibilities with testamentary transfers of NQSOs. There is a different tax result, however, with lifetime, non-arm's length transfers of NQSOs. In PLR 9722022, the grantee transferred NQSOs to an irrevocable trust for the benefit of family members.
The IRS concluded that the transfer of the NQSOs to the trust did not cause the grantee to recognize income as of the date of the transfer and, most importantly, that upon the subsequent exercise of the NQSOs by the trust, the grantee and not the trust would recognize taxable compensation income equal to the excess of the fair market value of the shares received as of the date of the exercise (determined as of the exercise date) over the option price paid for the shares. The word "charity" could be substituted for the word "trust" in PLR 9722022 with a similar result. And, with a further conclusion that the grantee would receive a charitable income tax deduction, as of the date of the exercise of the NQSOs, by the charity in the same amount as the amount of the taxable compensatory income to be reported by the grantee as of such date. See case study 4 for a discussion of the gift planning possibilities with lifetime transfers of NQSOs.
Following the death of the grantee-employee, if the NQSO plan permits the beneficiaries of the grantee-employee to exercise the NQSO, and if the NQSO was not taxed at the date of the grant thereof, then the NQSO will pass to the beneficiaries of the grantee-employee with the potential taxation of the compensation income element left open. So, after the date of the death of the grantee-employee when the beneficiaries engage in a transaction that "closes" the option transaction (an exercise of the option), it will be the beneficiaries who will report the ordinary compensation income (see Treas. Reg. §§1.83-1(c) and (d)). The "open" income tax treatment of this asset applies the same rules with the same income tax effects as with any other assets that involve "income in respect of a decedent." Most notably, these rules and the tax treatment are the same as those involved with qualified retirement plans and individual retirement accounts. These IRD rules provide planning opportunities for gift planners that will be discussed in more detail in case study 5. The fair market value of the NQSO, as of the date of the death of the grantee-employee, is an asset that will be includable in the taxable estate of the grantee-employee. The fair market value of an NQSO is basically the difference between the fair value of the stock of the company, as of the date of the death of the grantee, and the strike price.
The possibility for testamentary planning with NQSOs is much better than with ISOs. As discussed in case studies 3, 4, and 5, there are more "pre-exercise" planning opportunities with NQSOs than are available for ISOs.
Estoque Restrito.
The area of "compensatory" transfers of property using restricted stock is governed by IRC § 83. For purposes of this article, the term "property" will mean stock of the employer's company. When an employer "transfers" stock that is "restricted," and that is subject to a "substantial risk of forfeiture" to an employee "in connection with the performance of services," then the analysis of the income tax effects to the employee are not too dissimilar to those discussed above with respect to incentive stock options and non-qualified stock options. Perhaps the best way to explain "restricted stock" is by way of an example. On July 1, 2000, Dotcom Corporation transfers 1,000 shares of its common stock to its employee, Ms. Technonerd (Ms. T), who does not pay anything for the stock. On the date of the transfer, the shares have a value of $1.00 per share. The agreement between Dotcom and Ms. T specifies that if Ms. T leaves the employ of Dotcom before July 1, 2002, she will forfeit all rights to the stock that must then be returned to Dotcom without Ms. T receiving any payment for the stock. In addition, Ms. T is prohibited by the employer's restricted stock plan from transferring the stock during the period that the "substantial risk of forfeiture" (the employment condition) continues to apply other than on her death or to a limited class of permitted transferees such as her family members and charities. A legend to this effect is stamped on Ms. T's stock certificate. Assume that the value of the stock on July 1, 2002, which is after Dotcom's IPO, will be $50.00 per share. Assume also that Ms. T remains in the employ of Dotcom past July 1, 2002. For purposes of the following discussion, July 1, 2000, is the date of the "transfer" of the "property" (the stock), and July 1, 2002, is the date that the stock is transferable and no longer subject to the substantial risk of forfeiture.
Contrary to the rules discussed above with respect to incentive stock options and non-qualified stock options as of the date of the grant of the options, the date of the "transfer" of the restricted stock to the employee is significant. Depending upon what course of action the employee takes on the date of the transfer, the employee may, or may not, have an income tax reporting event as of that date. In the example set forth above, Ms. T will not have any income to report if she does nothing because the stock that she received is subject to a "substantial risk of forfeiture." However, see below for the income tax effects to Ms. T, as of the date the stock is no longer subject to the substantial risk of forfeiture, if she does nothing as of the date of the transfer. The effects later will be quite severe.
Ms. T does, however, have a choice as of the date of the transfer of the property (July 1, 2000, in our example). Ms. T can file an IRC § 83(b) election with the IRS. If she does file this election, then Ms. T will be required to report, as ordinary compensatory income, the value of the stock as of the date of its transfer to her (July 1, 2000). In our example, this amount will be $1.00 X the 1,000 shares or only $1,000 of ordinary income. Her basis in the stock will be $1,000, and the holding period for capital gain considerations will commence as of the date of the transfer of the stock to her (July 1, 2000). Then on July 1, 2002, when the substantial risk of forfeiture expires, Ms. T will not have any further income to report to the IRS. And even more importantly, if Ms. T were to sell the stock on July 2, 2002, the $49 of appreciation realized after July 1, 2000, will be reportable by Ms. T as capital gain.
The income tax effects, as of the date that the stock is no longer subject to the substantial risk of forfeiture, depends on the course of action that the employee took as of the date of the transfer of the stock to her by the employer. If the employee did nothing, as of the date of the transfer of the stock, which means that the employee did not file an IRC § 83(b) election, and did not report any income to the IRS in year 2000, then the employee will have to report, as ordinary compensatory income in the year that the substantial risk of forfeiture lapses, the full value of the stock as of such date. So, in our example, by doing nothing on July 1, 2000, and reporting no income to the IRS in year 2000, Ms. T will have to report to the IRS, as ordinary compensatory income for year 2002 (the year that the substantial risk of forfeiture expires), $50.00 X 1,000 shares or $50,000. Her basis in the stock will be $50,000, and her holding period for capital gain considerations will commence as of the date that the substantial risk of forfeiture lapses (July 1, 2002). So, Ms. T will have to wait until July 2, 2003, to sell the stock if she wants to report any further appreciation in value as long-term capital gain. If the employee does file an IRC § 83(b) election when she receives the restricted stock, then in the later year when the substantial risk of forfeiture lapses, the employee will not have any further income to report to the IRS.
In our example, if Ms. T files the IRC § 83(b) election, then on July 1, 2002, she will not have any further income to report. Her next tax event will be when she sells the stock. If the employee fails to satisfy the condition of the restrictions and, therefore, the substantial risk of forfeiture actually occurs, the employee will lose the ownership, and the company will regain the ownership of the stock. Regardless of whether or not the employee has filed an IRC § 83(b) election, there will not be any income tax effect to the employee on the forfeiture and transfer of the stock back to the company, i. e., the employee will not be able to report a taxable loss of any nature on the transfer of the stock back to the company.
Before the employee has reported the income to the IRS with respect to the transfer of the stock, which means that the employee did not file an IRC § 83(b) election at the time of the transfer of the stock to her, and the substantial risk of forfeiture has not yet lapsed, a disposition of the stock by the employee, which can occur by reason of the employee's death and by reason of any other disposition so long as the substantial risk of forfeiture remains in effect, will create rather complex income tax results to the employee. In an arm's length disposition, the employee reports the amount realized through the disposition as compensation income, and IRC § 83 has no further application to the transaction. If, however, the stock is disposed of in a non-arm's length transaction (such as a gift to a family member or to a charity), there are two potential tax events to the employee--the disposition and the lapse of the restrictions. The disposition does not terminate the application of IRC § 83 to the employee; rather IRC § 83 continues to apply until the restrictions lapse. If the employee is not paid anything for the stock, as of the date of the disposition (in a true gift situation), then there will not be any income for the employee to report at that time. And, then on the lapse of the restrictions, the employee (not the transferee) will report the same amount of ordinary compensatory income at that time as if the employee had not previously disposed of the stock. If the non-arm's length disposition is to a charity, and if the disposition occurs before the restrictions lapse, then the employee-donor will report the compensatory ordinary income and receive a charitable income tax deduction only in the year that the restrictions lapse.
After the employee has reported the income to the IRS with respect to the transfer of the stock, either as of the date of the transfer (by filing an IRC § 83(b) election), or as of the date that the restrictions lapse (by previously not filing an IRC § 83(b) election), the ownership of the stock for income tax purposes will be treated in exactly the same manner as the ownership by any individual of similar stock that was not previously restricted stock. The primary issue will then be whether or not, on a later sale of the stock, the owner will be entitled to report any further appreciation as long-term capital gain. The planning choices for gift planners will also then be the same as with any other stock investments based primarily on whether or not the stock is a long-term capital gain asset. There is, however, one significant remaining non-tax issue if the stock is disposed of before the substantial risk of forfeiture lapses, even if the employee has filed the IRC § 83(b) election. That issue is that if the forfeiture condition occurs (in our example if Ms. T's employment terminates before July 1, 2002), the transferee (the family member or the charity) will no longer be the owner of the stock and, generally, will not be paid anything for the stock as of the date of the forfeiture.
Currently, there do not appear to be many planning opportunities, if any, to assist the employee-donors to avoid the imposition of the ordinary compensatory income during their lifetimes with restricted stock. There is one testamentary planning opportunity with restricted stock that is discussed in case study 6.
If the employee's death occurs after the transfer of the stock and before the restrictions lapse, and if the restricted stock plan of the employer permits a transfer to the deceased employee's family members or other beneficiaries without a triggering of the forfeiture restriction, then the employee's death itself does not close the compensation element of the transaction. Tesouro. Reg. § 1.83-1(d) specifies that the compensation element in the restricted stock that remains unreported as of the date of the employee's death is to be considered as "income in respect to a decedent." This is the same treatment that is imposed upon any balances remaining in any qualified retirement plans (like 401(k) plans) and individual retirement accounts (IRAs). Hopefully, most gift planners are becoming familiar with the severe tax (both estate tax and income tax) consequences that these assets are subjected to upon the death of the employee. Hopefully, also, most gift planners will also be familiar with the testamentary planning considerations that are available with IRA accounts and charitable remainder trusts. The testamentary planning considerations for restricted stock are discussed in case study 6. The fair market value of the restricted stock, as of the date of the employee's death, will be includable in the employee's taxable estate for federal estate tax purposes. In determining the fair market value of the restricted stock, the existence of the substantial risk of forfeiture must be considered.
As previously discussed, the open compensation element in restricted stock, as of the date of the death of the employee, will be treated as "income in respect of a decedent" under the IRC. By analogy, the private letter rulings that permit the testamentary transfer of IRD assets contained in qualified retirement plans and individual retirement accounts to charitable remainder trusts following the death of the participant-donor, it seems appropriate, if the employer's restricted stock plan permits transfers, for the employee-donor to transfer the restricted stock (for which no IRC § 83(b) election was filed and that is still subject to the substantial risk of forfeiture) to a charitable remainder trust for the benefit of the members of the employee-donor's family and for the benefit of the donor's favorite charities. This planning opportunity will be illustrated in detail in case study 6.
Gift Planning Strategies For Stock Options And Restricted Stock.
Transfer of ISO stock to a charitable remainder trust. The first gift planning strategy involves a transfer of the stock acquired through the exercise of an incentive stock option as contrasted with a transfer of the incentive stock option itself. After the donor has exercised the incentive stock option, and after the donor has satisfied the 2 and 1 Rule, the donor establishes a charitable remainder trust, gives the shares of the ISO stock to the CRT and then the CRT sells the stock. This strategy provides nothing new or unusual from a planned giving standpoint except for the emphasis on the fact that the donor had owned the stock long enough to satisfy the 2 and 1 Rule. This strategy is illustrated in case study 1.
Transfer of ISO stock to a charitable lead trust. This gift planning strategy also involves a transfer of the stock acquired through the exercise of an incentive stock option as contrasted with a transfer of the incentive stock option itself. The donor has exercised the incentive stock option and currently owns the stock. The donor wants to establish a charitable lead trust to benefit his/her favorite charity. The donor can establish the charitable lead trust and transfer the ISO stock to the CLT only after he/she has owned the stock long enough to satisfy the 2 and 1 Rule. This illustrates two planning principles involving ISOs: 1) the inability to provide any planning suggestions or opportunities with regard to the incentive stock options that by the very terms of the enabling IRC sections are non-transferable; and 2) the need for the donor to satisfy the 2 and 1 Rule before any gift planning strategies are implemented. See case study 2.
Transfer of NQSOs to a charity. This gift planning strategy is simply an illustration of the fact situation found in PLR 200002018. In this situation, the employer's plan for its non-qualified stock options allows the options to be transferred prior to their exercise to family members and to charities. The grantee-donor, therefore, transfers, at his/her death, some NQSOs to his/her favorite charity before the options are exercised. After death, and after the receipt of the options by the charity, the charity exercises the NQSOs and becomes the owner of the stock. The charity then sells the stock to obtain the cash. The income tax and estate tax effects on the donor's family are illustrated in more detail in case study 3.
Transfer of NQSOs to a charitable lead trust. This gift planning strategy is an extension of the facts considered by the IRS in PLR 9722022. The donor, during her lifetime, establishes a charitable lead trust and transfers a portion of her options into the CLT. The plan established by the donor's employer for the NQSOs allows such a transfer prior to the exercise of the options. See case study 4.
Testamentary transfer of NQSOs to a charitable remainder trust. This gift planning strategy is believed to be more innovative and relies on the Treasury Regulations that require the beneficiaries of the deceased grantee-employee to report the compensation income in the NQSOs as "income in respect of a decedent" when they, the beneficiaries, exercise the NQSOs after the grantee-employee's death. This IRD characterization, and the prior IRS private letter rulings that allow the IRD from qualified retirement plans and IRAs to be "transferred" to a charitable remainder trust following the death of the IRA participant, seem also to be applicable to NQSOs. After the donor's death, the donor's will (or living trust document) simply requires that a charitable remainder trust be set up following the donor's death and that the NQSOs or some part of them are to be transferred to the CRT. (Obviously it is imperative that the employer's plan for the NQSOs allows such a transfer.) The CRT then exercises the NQSOs, and the CRT reports the IRD rather than the donor's estate or the donor's estate beneficiaries. See case study 5.
Testamentary transfer of restricted stock to a charitable remainder trust. This last gift planning strategy is similar to the strategy discussed above except that it involves the testamentary transfer of restricted stock rather than NQSOs. In this strategy, the employer's restricted stock plan allows the restricted stock to be transferred following the death of the employee, subject to the continuing restrictions. Since Treas. Reg. § 1.83-1(d) categorizes the compensation element in the restricted stock after the employee's death to be "income in respect of a decedent," the deceased employee-donor can direct that, following death, the restricted stock is to be transferred to a charitable remainder trust. The existing private letter rulings that allow the IRD from qualified retirement plans and IRAs to be "transferred" to a charitable remainder trust following the death of the IRA participant seem also to be applicable to restricted stock. See case study 6.
Case Studies And Specific Applications For Stock Options And Restricted Stock.
The six case studies that follow will provide insights into some of the alternative ways that gift planners can assist their potential donors who are the owners of stock options with the structuring of gift transactions that provide, in each case, significant benefits for the donors or their families and for the charities of their choice.
In each of the six following case studies, the assumptions set forth below have been used with additional assumptions being stated in each particular case study itself when necessary.
7520 interest rate.
Present value interest rate (inflation)
Combined federal and state ordinary income tax rate.
Before tax total rate of investment return.
Combined federal and state capital gain tax rate.
Federal estate and gift tax exemption equivalents.
Used; all transfers are taxable.
Federal estate and gift tax rate.
1 This assumed 7520 interest rate (or the charitable mid-term rate (CMFR) is the average over the last three years of the 7520 rates.
Stock from incentive stock options, after the satisfaction of the 2 and 1 Rule,
charitable remainder trust.
In spite of her age, Ms. Technonerd has had a very important position with Dotcom Corporation for many years. In fact, Dotcom Corporation was one of the first Silicon Valley start-ups. During the past several years, Dotcom has had steadily increasing earnings. As one of its ever-increasing employee benefits, Dotcom granted its key employees incentive stock options (ISOs). Ms. T was one of these employees.
Ms. T exercised her ISOs more than two years ago. She has, therefore, satisfied the 2 and 1 Rule. Even though Ms. T's salary from Dotcom has increased significantly, she and her husband are interested and would welcome some additional income for their retirement years. The donors have also been very active with local charities, and one of the planned giving officers from one of these charities has explained to them the benefits of a charitable remainder trust. Mr. and Ms. T decide to set up a charitable remainder unitrust for their joint lifetimes with a payout rate of 8%. They transfer some of Ms. T's stock in Dotcom valued at $2,000,000 to the CRUT. The stock has an income tax basis of $200,000 that was the exercise price of the ISOs.
So what are the financial results to Ms. T, her husband, child, and to the charity?
Fair market value of stock.
Exercise price/income tax basis in the stock.
Ages of the donors.
Term of the CRUT.
Joint lives/23 years.
CRUT payout rate.
No planning: death at life expectancy.
Charitable remainder unitrust for benefit of donors.
Charitable remainder unitrust and a wealth replacement trust.
Sales price now.
Total income taxes.
After-tax sales proceeds held for the benefit of the donors.
Income tax deduction.
Income tax savings.
First year after-tax income and tax savings.
Subsequent annual after-tax income.
Cumulative annual after-tax income paid through life expectancy.
Life insurance death benefit.
Net after-tax wealth received by the family of the donors.
Benefit to charity.
1 In this situation, the $141,224 of income tax savings are used to purchase a single premium, second-to-die life insurance policy, on the lives of the donors. The insurance policy was designed to perform under adverse conditions including a 10% reduction from the current earning rate.
2 In the interest of simplicity, these figures ignore the opportunity and the strong likelihood that the donors will be able to re-accumulate a significant amount of wealth over their lifetimes by using the CRT alternative, due to the fact that they will receive a significantly higher after-tax income stream from the CRT for a very long time.
Stock from incentive stock options, after the satisfaction of the 2 and 1 Rule,
charitable lead trust.
Mr. PropellerHead (PH) is an employee of a corporation, WebSite Corporation, which is a "less mature" business entity than Dotcom Corporation. However, WebSite has just recently successfully completed its IPO, and the future for WebSite looks very promising. In fact, some of PH's stock in WebSite, which he acquired just over two years ago from the exercise of some of his incentive stock options, has a current value of $2,000,000 and is expected to be valued 10 years from now at $8,000,000.
PH and his wife have two very young children who seem destined for Harvard and Stanford in several years. Mr. and Mrs. PH have listened to the planned giving officer at their college alma mater and are ready to set up a charitable lead annuity trust (CLAT) with a portion of the WebSite stock. The charitable lead annuity trust will have a term of 10 years (to tie-in to when their oldest child will be ready for college), and their alma mater will be the recipient of the annual "lead" payments from the CLAT that will be set at $90,000 (4.5% X $2,000,000) for the full 10 years.
The financial results shown below assume that PH and his wife both die in year 10 following the establishment of the CLAT, so that an overall comparison of the alternatives can be properly evaluated. In fact, however, PH and his wife actually live long and healthy lives, enjoy being with their family, and since they had such a positive experience with this first CLAT, they become significant philanthropists in their community.
Fair market value of stock today.
Fair market value of stock in 10 years.
Exercise price/income tax basis in the stock.
Charitable lead annuity trust payout rate.
Charitable lead annuity trust term.
No planning: gift in 10 years at death.
Gift now and death in 10 years.
Gift now through a 10- year charitable lead annuity trust.
Value of stock today and at date of the gift.
Reportable taxable gift today.
Gift tax paid today by donors.
Adjustments due to early payment of gift tax.
Annual gross/after-tax dividends.
Cumulative after-tax, invested value of dividends.
Dividends paid to charity over 10 years.
Value of stock in 10 years.
Income tax basis for stock.
Income taxes on long-term capital gains paid in 10 years.
Subsequent federal estate taxes.
Net after-tax wealth received by the family of the donors.
Benefit to charity.
1 This adjustment is the gift tax of $683,938 paid in the charitable lead trust example invested at 4.8% after tax for 10 years, which is then reduced by 50% for the estate tax that otherwise would be payable.
2 This adjustment is the difference between the $1,000,000 of gift tax paid in the "gift now" example and the $683,938 of gift tax paid in the "charitable lead trust" example invested at 4.8% after tax for 10 years, which is then reduced by 50% for the estate tax that otherwise would be payable.
Non-qualified stock options, transfer of the options at death,
and prior to exercise directly to a charity.
In addition to receiving her incentive stock options from Dotcom Corporation, Ms. Technonerd also was granted an even greater number of non-qualified stock options (NQSOs) in Dotcom. These NQSOs actually form a very significant portion of Ms. T's overall wealth. The various tranches of the options, all of which are now vested, are exercisable over differing periods of time, at different prices. The top echelon at Dotcom are actually very enlightened, and they have amended all of their NQSO plans to allow the options to be transferred to members of the families of the grantee-employees, or trusts for their benefit, and to charities.
During one of Ms. T's conversations with her favorite planned giving officer at her favorite local charity, Ms. T came to understand the devastating income tax and estate tax effects on her family after her death when her family exercises her NQSOs. Ms. T believes that she can provide a very significant gift to her favorite charity at a very low "cost" to her family by amending her living trust to make a gift at her death of some of her NQSOs directly to the charity. Ms. T does make that amendment to her living trust. Her gift includes the NQSOs and enough cash for the charity to be able to exercise the options after the charity receives the options.
Fair market value of option.
Exercise price for the stock.
Direct gift at death of the non-qualified stock option to charity.
Fair market value of option at death.
Additional cash for exercise of the option.
Total assets for family or charity.
Total estate taxes.
Total income taxes on IRD.
Net after-tax wealth received by the family of the donors.
Benefit to charity.
Non-qualified stock options, transfer of the options during lifetime,
and prior to exercise to a charitable lead trust.
WebSite Corporation has been very interested in retaining its valued employees. So, in addition to the adoption of incentive stock option plans, WebSite has also created a number of NQSO plans. Mr. PropellerHead (PH) is one of the employees who now owns vested NQSOs. The plans for these NQSOs allow the options to be transferred to members of the families of the grantee-employees, or trusts for their benefit, and to charities.
Since PH and his wife had such success with the charitable lead annuity trust that they established to provide for their children's education in case study 2, they also immediately establish a second CLAT with a long-range view for their children. And, instead of funding the CLAT with stock, PH and his wife transfer some of the NQSOs to the CLAT instead. The NQSOs that are transferred to the CLAT have a relatively small value at the time of the transfer, and the exercise price for the NQSOs is very insignificant. Mr. and Mrs. PH understand, however, that they must also transfer enough cash to the CLAT, in addition to the NQSOs, so that the CLAT will have the liquidity to make the payments to their college over the 10-year term of the CLAT. PH again expects the value of the stock to be $8,000,000 at the end of the term of the CLAT. After the end of the 10-year term of the CLAT, the trust does not immediately distribute to the children, but the assets in the trust are then held for the benefit of the children for a number of years.
As in case study 2, the financial results shown in the financial results table below assume that PH and his wife both die in year 10 following the establishment of the CLAT, but, as before, they continue to live a long, full, and philanthropic life.
Fair market value of option today.
Fair market value of stock in 10 years.
Exercise price/income tax basis in the stock in year 10.
Charitable lead annuity trust payout rate.
Charitable lead annuity trust term.
No planning: death in 10 years; option exercised just after donors' death.
Gift now of the option through a charitable lead annuity trust; option exercised just after donors' death.
Value of option today.
Additional liquid assets transferred to the charitable lead trust.
Adjustment due to transfer of additional assets to the charitable lead trust.
Reportable taxable gift today.
Gift tax paid today by donors.
Adjustment due to early payment of gift tax.
Value of option in 10 years.
Total estate taxes.
Total income taxes at ordinary income tax rates.
Adjustment for donor estate's payment of the income taxes after death in the charitable lead trust.
Value of additional assets remaining in the charitable lead trust.
Net after-tax wealth received by the family of the donors.
Benefit to charity.
1 This adjustment is the additional assets of $200,000 paid into the charitable lead trust invested at 4.8% after tax for 10 years, which is then reduced by 50% for the estate tax that otherwise would be payable.
2 This adjustment is the gift tax of $115,717 paid in the charitable lead trust example invested at 4.8% after tax for 10 years, which is then reduced by 50% for the estate tax that otherwise would be payable.
3 This figure is the ordinary income tax at a rate of 40% of $3,200,000 paid in the charitable lead trust example by the donor's estate after his death.
4 This adjustment is the income tax of $3,200,000 paid in the charitable lead trust example by the donor's estate, which is then reduced by 50% for the estate tax that otherwise would be payable.
Non-qualified stock options, transfer of the options prior to exercise,
but following the death of the option holder to a charitable remainder trust.
Ms. Technonerd wants also to provide benefits for her daughter, following her death, from more of her Dotcom Corporation vested non-qualified stock options and ultimately for her favorite local charity. The planned giving officer suggests the following gift planning strategy to Ms. Technonerd. Ms. T and her husband think that this strategy is so significant and so powerful for their family and the charity that, without any further coaxing, they immediately make an appointment with their equally enlightened attorney who makes the appropriate amendments to their estate planning documents.
The estate planning documents for Ms. T and her husband are amended to provide that following both of their deaths, a charitable remainder unitrust will be established for the lifetime of their daughter who is now 35-years old. The CRUT will provide for a payout rate to their daughter of 6%. The CRUT will be funded after both of their deaths with some of the NQSOs of Dotcom that have a value of $1,800,000 and a strike price of $200,000. The gift to the CRUT includes cash of $200,000 so that the CRUT will be able to exercise the NQSOs without diminishing the principal of the CRUT.
This gift planning strategy provides significantly greater benefits for Ms. and Mr. T's daughter over her lifetime than if the NQSOs were simply transferred to her by Ms. and Mr. T after their deaths, primarily due to the imposition of the income tax on the "income in respect of a decedent," which their estate would be required to pay if the NQSOs are transferred directly to their daughter. This strategy, and its financial results, are very similar to those expected from a testamentary transfer of assets in qualified retirement plans and individual retirement accounts to a charitable remainder trust.
Fair market value of option today.
Exercise price/income tax basis in the stock.
Age of the donors' child.
Child's life expectancy and term of the charitable remainder trust.
CRUT payout rate.
Gift of the option at death to a charitable remainder unitrust.
Fair market value of option at death.
Additional cash for exercise of the option.
Estate tax deduction.
Total estate taxes.
Total income taxes on IRD.
Adjustment due to the exercise price and the estate tax being paid from other assets in the charitable remainder trust example.
After-tax amount available for investment.
Annual after-tax income (range)
Cumulative annual after-tax income paid through life expectancy.
Present value of the cumulative income stream.
Present value of invested principal.
Present value of net after-tax wealth received by the family of the donors.
Present value of benefit to charity.
1 This adjustment is the exercise price of $200,000 and the estate tax of $892,360 paid from other assets in the charitable remainder trust example, which are then reduced by 50% for the estate tax that otherwise would be payable.
Restricted stock, transfer of the stock prior to lapse of restrictions, but following the death of the stockholder to a charitable remainder trust.
This case study is actually quite similar to the strategy shown in case study 5, except that the asset used to fund the 6% charitable remainder unitrust for the benefit of Ms. and Mr. T's daughter is restricted stock rather than non-qualified stock options.
Again, the top management of Dotcom Corporation is to be commended. One of the restricted stock plans that Dotcom adopted (and, of which, Ms. T is a participant) creates "substantial risks of forfeiture" of the stock based on earnings performance goals for the company rather than the more usual restrictions based on the continued employment of the employee-owner of the restricted stock. The plan also allows the restricted stock to be transferred to members of the families of the owner-employees, or trusts for their benefit, and to charities.
So when Ms. T and her husband visit their attorney to amend their estate plan to provide for the creation of the charitable remainder trust following their deaths for some of the non-qualified stock options as described in case study 5, they also include provisions for the establishment of another, but similar, charitable remainder trust that will be the recipient of a portion of the restricted stock. The restricted stock has a value today of $2,000,000. And, in fact, after the deaths of Ms. and Mr. T and the receipt of the stock by the CRUT, Dotcom achieves its earnings goals specified in the restricted stock plan and the stock is no longer restricted.
Since, at the time of Ms. and Mr. T's deaths, the restrictions on the stock had not yet lapsed, the compensation income element "built in" to the restricted stock is considered as "income in respect of a decedent," which is potentially taxable to their daughter at ordinary income tax rates. Similarly, as in case study 5, this gift planning strategy provides significantly greater benefits to their daughter when compared simply to allowing their daughter to receive the restricted stock directly. And, of course, there is ultimately a significant benefit to the favorite charity of Ms. and Mr. T.
Fair market value of restricted stock today.
Age of the donors' child.
Child's life expectancy and term of the charitable remainder trust.
CRUT payout rate.
Gift of the restricted stock at death to a charitable remainder unitrust.
Fair market value of restricted stock at death.
Estate tax deduction.
Total estate taxes.
Total income taxes on IRD.
Adjustment due to the estate tax being paid from other assets in the charitable remainder trust example.
After-tax amount available for investment.
Annual after-tax income (range)
Cumulative annual after-tax income paid through life expectancy.
Present value of the cumulative income stream.
Present value of invested principal.
Present value of net after-tax wealth received by the family of the donors.
Present value of benefit to charity.
1 This adjustment is the estate tax of $892,360 paid from other assets in the charitable remainder trust example, which is then reduced by 50% for the estate tax that otherwise would be payable.
Conclusão.
Incentive stock options, non-qualified stock options, and restricted stock are a source of significant wealth for many potential donors. While the gift planning strategies discussed in this article may have fairly limited application, they are also very powerful. And, even though the application of the strategies may be seen as fairly narrow, the opportunity to build strong and obviously very beneficial mutual relationships between potential donors and charity can perhaps open other avenues and assets to charitable giving.
The opportunities available for charities, allied professionals and, most importantly, donors to use planned giving tools to assist with the succession planning and tax reduction for their options and restricted stock are immense. The reasons are at least twofold the amount of wealth involved with options and restricted stock in our country is ever increasing, and these sophisticated charitable giving techniques are extremely powerful. As planners, all of us must continue to expand our knowledge of these techniques, to emphasize the use of these techniques, and to encourage all of the donors that we advise to use them for their benefit, and for the benefit of their favorite charities.
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