For Madison professionals working in technology, biotechnology, healthcare, research, or growing private companies, a large portion of family wealth may not sit in a bank account. It may exist in stock options, restricted stock units, private-company shares, or other equity compensation.
Those assets require different planning from ordinary investments.
An estate planning attorney can coordinate your equity compensation with Wisconsin marital-property law, trusts, Powers of Attorney, tax planning, and beneficiary arrangements so a death or incapacity does not leave your family trying to interpret a complicated stock plan on its own.
What Happens to Unvested RSUs and Stock Options?
The first answer is always: read the plan documents.
RSUs are generally promises to deliver stock or cash in the future after vesting conditions are satisfied. Until stock-settled RSUs vest and shares are issued, the employee generally does not actually own those underlying shares.
Employer plans determine whether unvested awards:
- Forfeit at death
- Accelerate vesting
- Continue vesting for beneficiaries
- Receive prorated treatment
- Remain exercisable for a limited period
Stock-option agreements also commonly establish who can exercise vested options after death and how long that right lasts.
That makes an equity-compensation inventory just as important as a list of bank and investment accounts.
Can RSUs or Options Go Into a Revocable Trust?
Not necessarily.
Many employee stock awards contain transfer restrictions. Incentive stock options, for example, generally must be nontransferable during life except at death to retain statutory treatment.
Unvested RSUs are also contractual rights rather than ordinary publicly traded shares, so simply assigning them to a revocable trust may violate the employer plan.
Once vested shares are actually issued, they may be easier to coordinate with a trust, subject to company restrictions.
For private or pre-IPO companies, shareholder agreements, rights of first refusal, buy-sell provisions, securities restrictions, and company consent requirements deserve additional review. SEC-filed equity agreements commonly show how transfer restrictions can continue to bind an estate, trustee, or other successor.
Do Equity Assets Receive a Step-Up in Basis?
This is where equity compensation becomes particularly technical.
Ordinary vested shares owned at death generally receive a basis based on fair market value at death under the usual inherited-property rules.
But do not assume the same treatment applies to every unexercised option or unvested compensation right.
Federal tax law treats certain compensation that was earned but not yet taxable before death as income in respect of a decedent, or IRD. The IRS specifically notes that inherited property that was not substantially vested at death can produce IRD rather than receiving ordinary basis treatment.
An estate planning attorney and tax adviser should therefore distinguish between:
- Already owned shares
- Unvested RSUs
- Vested but unexercised options
- ISOs
- NSOs
- Deferred compensation
They are not interchangeable assets.
ISOs and NSOs Create Different Tax Problems
Incentive Stock Options and Non-Qualified Stock Options receive different federal tax treatment.
ISOs generally do not create regular taxable income when granted or exercised, although exercise can create an alternative minimum tax adjustment. NSOs generally produce ordinary compensation income upon exercise equal to the value of the stock received minus the exercise price.
Estate planning should therefore identify the type of option before deciding whether heirs should exercise, sell, hold, or fund taxes from other estate assets.
Wisconsin Marital Property Still Matters
Wisconsin generally presumes property of spouses to be marital property, and each spouse generally holds a present one-half interest in marital property. Income earned during marriage is also generally marital property unless another classification applies.
That can affect equity compensation earned during marriage even when an account or award appears solely in one spouse’s name.
Transferring assets into a trust does not, by itself, change their marital-property classification.
Madison couples should therefore coordinate stock awards with marital-property agreements, trusts, beneficiary planning, and tax strategy rather than treating equity as one spouse’s isolated asset.
Planning for Incapacity and Concentrated Stock
Death is not the only concern.
If an executive becomes incapacitated shortly before an option deadline, someone needs authority to review award documents, communicate with the employer or brokerage, manage issued shares, and potentially exercise options where the plan permits.
A Financial Power of Attorney should specifically be reviewed for securities and investment authority, while a funded trust may provide continuity for shares already owned.
Families should also address concentration risk. A trust can give a successor trustee authority to diversify inherited public-company stock when appropriate rather than leaving heirs with an oversized position in one employer.
Equity compensation can become one of your family’s largest assets, but only if the estate plan accounts for vesting schedules, transfer restrictions, tax rules, incapacity, and Wisconsin marital property. Krause Estate Planning & Elder Law Center helps Madison professionals coordinate stock options, RSUs, trusts, Powers of Attorney, and broader legacy goals. Contact an estate planning attorney today to make sure your equity plan still works when life moves beyond the vesting date.
Frequently Asked Questions
1. What happens to unvested RSUs or options after death?
The employer’s plan controls. Awards may forfeit, accelerate, continue, or become exercisable for a limited period.
2. Can unvested equity go into my revocable trust?
Often not directly. Transfer restrictions and the nature of the award must be reviewed first.
3. How can tech equity avoid Wisconsin probate?
Issued shares may potentially be coordinated with trusts or beneficiary arrangements where the employer and brokerage permit them.
4. Do heirs receive a step-up in basis?
Generally for ordinary inherited shares, yes. Unvested compensation rights and some options can involve IRD rules instead.
5. How does Wisconsin marital property affect equity?
Compensation earned during marriage may have marital-property implications regardless of whose name appears on the award.
6. What about private or pre-IPO equity?
Review transfer restrictions, shareholder agreements, buy-sell rights, company repurchase provisions, valuation, and liquidity before drafting the estate plan.
7. How do ISOs differ from NSOs?
ISOs can receive preferential tax treatment but may trigger AMT; NSOs generally create ordinary compensation income when exercised.
8. How can I prepare for RSU tax under-withholding?
Coordinate vesting projections, withholding, estimated taxes, and available cash with a tax professional instead of assuming payroll withholding will cover the full liability.
9. Who can exercise options if I become incapacitated?
An authorized agent may be able to act if the Power of Attorney and employer plan permit it. The stock-plan terms remain critical.
10. How can heirs manage concentrated employer stock?
Trustee investment powers, diversification authority, liquidity planning, and coordinated financial advice can reduce the risk of one stock dominating the inheritance.
TL; DR:
- An estate planning attorney can help professionals protect stock options, restricted stock units (RSUs), and other forms of equity compensation by ensuring these assets are properly addressed in the broader estate plan.
- A Madison estate planning attorney can review employee stock plans, vesting schedules, and executive compensation arrangements to determine what happens to vested and unvested benefits after death or incapacity.
- Thoughtful beneficiary planning, trust planning, and stock inheritance strategies can help coordinate equity awards with estate planning Wisconsin, reducing confusion and supporting smoother wealth transfer.
- Effective planning should also consider deferred compensation, estate tax planning, capital gains planning, and broader financial planning so valuable equity does not create avoidable tax or administrative complications.
- By combining asset protection, legacy planning, and guidance under estate law Wisconsin, an estate planning attorney can help executives and professionals preserve the value of their equity compensation for the people they intend to benefit.