Stock options could be the single most valuable asset that many individuals own.

If you have unexercised stock options, you should consider the unique ways in which a gift of stock options may further your estate plan. In the Securities and Exchange Commission changed its rules to allow the transfer of nonqualified stock options used in compensation programs. Incentive stock options, however, are not affected by the change.

Companies soon amended their plans to permit transfers, and many people began taking advantage of the chance to preserve substantial amounts of wealth in the family at relatively little transfer tax cost. The executive transfers the option to a child or to a trust for the child , and the taxable value of the gift will be relatively low, so that a minimal gift tax is due.

Giving Away Your Employee Stock Options

In a ruling just a few years ago, the IRS looked at a stock option plan in which an executive was required to perform additional services for the employer or risk forfeiture of the option. The individual made a gift of the option to one of his children before performing the necessary services. The ruling does not provide additional detail, but the plan might, for example, have made the options exercisable after three years with an expiration after ten years.

IRS concluded that the requirement of additional services by the executive meant that the gift was not complete, and therefore not taxable, when the gift of the stock options was made. The gift will be completed only when the additional services have been provided and the right to exercise the option is absolute.

In a rising stock market, delaying the moment at which the gift is complete will tend to increase the value of the option and increase the transfer tax cost of making the gift. Under IRC Section 83 the income tax falls on the individual who received the option as compensation. This is true even if the option has been transferred to a family member.

Payment of the income tax by the executive will diminish his or her eventual estate tax obligation, while it increases the basis of the stock in the hands of the transferee. Whenever a gift of stock options is complete, a gift tax may be due, depending upon the value of the gift.

Charitable Planning for Employee Stock Options and Optioned Stock | Planned Giving Design Center

The IRS has provided some official guidance on valuation, looking to the authority of the Financial Accounting Standards Board. Six factors need to be taken into account in valuing the option:.

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There are certain characteristics found in some people that seem to naturally put them in a position where theyre looked up to as a leader.

News: Valuing Gifts of Stock Options

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Careful planning is needed In a ruling just a few years ago, the IRS looked at a stock option plan in which an executive was required to perform additional services for the employer or risk forfeiture of the option. Who owes the income tax? How to value a gift of a stock option Whenever a gift of stock options is complete, a gift tax may be due, depending upon the value of the gift.

Six factors need to be taken into account in valuing the option: The mathematics for putting these factors together may follow the Black-Scholes model for valuing stock options, and some implementation details are provided by the IRS. Qualities of a Leader How often have you heard the comment, He or she is a born leader?

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