Stock options, restricted stock units and private company equity are governed by a plan document and a grant agreement, not by your will. Those documents frequently say that your options expire within months of your death, that they cannot be transferred into your trust, and that unvested awards are forfeited. A will that leaves everything to a spouse does not change any of it. Ament Law Group reads the plan documents alongside the estate plan so equity does not expire during probate, so your agent can act if you cannot, and so your family is not holding a Pennsylvania inheritance tax bill on shares they cannot sell.
The Plan Document Controls
This is the point from which everything else follows, and it is the one most often misunderstood.
Equity compensation is contractual. The equity incentive plan and your individual grant agreement set out what happens on death, disability and departure, and those terms govern. Your will can direct who receives an award, but it cannot extend a deadline the plan imposes, authorize a transfer the plan prohibits, or revive something the plan forfeits.
So the first step in planning around equity is not drafting. It is reading. We need the plan, every grant agreement, and the current statement of what is vested, what is unvested and what has already been exercised. Clients are often surprised by what those documents say, including clients who have held awards for a decade.
The Post-Death Exercise Window
This is where real money disappears, and it disappears quietly.
Most plans give an estate a limited period after the holder's death to exercise vested options. Twelve months is common and shorter windows exist. The option's own expiration date still applies, so an award already near the end of its ten-year term may have far less time than the plan's death provision suggests.
Now set that against how an estate actually proceeds. Someone has to be appointed as executor. They have to find out the awards exist, which often means finding login credentials for an equity administration platform nobody else in the family has ever used. They have to work out what is vested. They have to come up with cash to pay the exercise price. Then they have to act, through a process designed for employees rather than estates.
Several months disappear before anyone has looked at a deadline. We have seen families learn about an expired grant after the fact, and there is no remedy for it. The award is gone, and the loss does not appear on any statement, because the asset simply ceases to exist.
What prevents it is unglamorous: a current schedule of awards kept with the estate planning documents, an executor who has been told the awards exist and that they are time-sensitive, and a named contact at the employer.
Why Your Trust Probably Cannot Hold Them
Standard estate planning advice is to fund a revocable trust with your assets so they pass outside probate. Equity compensation is a genuine exception.
Most grant agreements state that the award is non-transferable except by will or by the laws of descent and distribution. That language permits a transfer at death and prohibits one during life, which is the opposite of what funding a trust requires. An attempted transfer may be ineffective, and in some plans it is an event of forfeiture.
The practical consequences:
- Equity usually passes through probate even for a client who has otherwise avoided it, so probate administration needs to be fast rather than merely eventual. See probate administration.
- Exercised shares are different from the option. Once an option is exercised and shares are issued, those shares are ordinary property and can generally be retitled or transferred like any other security, subject to any company restrictions. The restriction attaches to the award, not to what it becomes.
- Some plans allow a beneficiary designation. Where that is available it is the cleanest solution available, because it bypasses probate for that asset entirely. It is also commonly left blank, because nobody mentioned it.
- Vested-but-undelivered RSUs occupy their own category and are worth checking specifically, because the plan may treat them as a contractual right to shares rather than as shares.
Unvested Equity Usually Disappears
In most plans, unvested awards are forfeited at death. A holder three years into a four-year vesting schedule may leave a family with nothing from the final tranche, however large it appeared on the last statement.
Some plans accelerate vesting on death or disability, in full or in part. Some accelerate only after a minimum period of service. Private company RSUs frequently require both time-based vesting and a liquidity event, meaning a death before an acquisition or an offering can leave units that will never be delivered no matter how long the holder worked.
This matters beyond the equity, because people insure and plan against a number that includes value they would not actually receive. If a meaningful share of your net worth is unvested, the honest planning figure is lower than your statement, and the gap is the thing to address, usually with insurance rather than with drafting.
Liquidity: A Tax Bill on Shares Nobody Can Sell
Two cash problems arrive together, and in a private company they can arrive without any cash.
The first is the exercise price. To realize value from options, the estate has to pay to exercise them. On a large grant that figure can be substantial, and an estate's other assets may be tied up in administration.
The second is Pennsylvania inheritance tax. It is due nine months after death and calculated on the value of what the decedent owned, including vested equity, and it does not wait for an asset to become sellable. In a public company the shares can be sold to pay it. In a private company, where transfer restrictions, a right of first refusal, or the simple absence of a buyer may make a sale impossible, the family can owe tax at 4.5 percent of a value they cannot access.
The answers are the familiar ones, and they have to be arranged in advance: life insurance held outside the estate, a reserve of liquid assets sized to the exposure, or, where the company cooperates, an arrangement permitting a repurchase sufficient to cover the tax. Our high net worth planning page covers the same liquidity problem across other illiquid assets.
Private Company Equity
If your equity is in a company that is not publicly traded, several additional constraints apply, and they are set by documents most holders have signed and few have read.
- Transfer restrictions and rights of first refusal in the shareholder agreement, which can apply to a transfer at death and can require the estate to offer shares to the company or to other holders first.
- Repurchase rights triggered by death, sometimes at a formula price or at the last determined valuation rather than at fair market value. Where this exists, your family's actual entitlement may be well below what the equity appears to be worth, and you should know that now rather than leaving them to discover it.
- Valuation. Reporting a value for inheritance tax on shares with no market is a position that has to be supportable. A formal valuation is usually worth its cost, both because it supports the return and because the alternative is an unsupported figure.
- Concentration. A single private holding that represents most of an estate is a structural risk, not merely an investment one. If a trust is to hold it, the instrument should speak directly to whether the trustee may retain a concentrated position, because a trustee holding it without that authority is exposed under the prudent investor standard for doing exactly what you intended.
- Information rights. Whether your estate can obtain financial information about the company, which determines whether anyone can make an informed decision about the position at all.
Incapacity, Which Is the More Likely Event
Death gets the planning attention. Disability is more probable and is handled worse.
If you are alive but unable to act, someone needs authority to exercise options before they expire, make elections under the plan, and deal with the equity administrator. Two documents have to permit it. Your financial power of attorney has to grant authority that clearly covers exercising and dealing with equity awards, and Pennsylvania requires certain powers to be granted expressly rather than read into general language (20 Pa.C.S. section 5601.4). The plan itself may also restrict who can act for a holder.
A general power of attorney drafted without equity in view can leave an agent watching a deadline pass with no ability to intervene. Adding explicit authority costs nothing while you have capacity and cannot be added once you do not.
Pennsylvania Inheritance Tax on Equity
Pennsylvania taxes the property of a resident decedent at rates set by the recipient's relationship: 0 percent to a surviving spouse, 4.5 percent to children over 21 and other lineal heirs, 12 percent to siblings, and 15 percent to everyone else. Transfers to a child aged 21 or younger are taxed at 0 percent. Vested options, delivered shares and vested-but-undelivered units are all property for this purpose.
Two points specific to equity. The taxable value of an option is generally the spread rather than the full share price, which is a smaller number than families expect and worth calculating correctly. And the timing is unforgiving: the tax is due at nine months, with a 5 percent discount for paying within three, while the equity may not be convertible to cash on anything like that schedule.
You can estimate the exposure with our Pennsylvania inheritance tax calculator.
A Note on Income Tax
The income tax treatment of equity compensation, for incentive stock options, non-qualified options and RSUs, during life and after death, is genuinely complicated and belongs with your accountant. We will coordinate with them, and we would rather raise a question for them to answer than give you a confident answer that turns out to be expensive. What we handle is the ownership side: who is entitled to what, who has authority to act, what the plan permits, and what Pennsylvania inheritance tax applies.
What To Actually Do
For most clients this is a short list, and most of it is gathering rather than drafting:
- Collect the equity plan, every grant agreement and a current vesting statement, and keep them with your estate planning documents rather than in an email archive
- Find out the post-death exercise window for each grant, and whether any grant is near the end of its term
- Check whether the plan permits a beneficiary designation, and complete it if so
- Confirm your power of attorney expressly authorizes dealing with equity awards
- Tell whoever will serve as your executor that the awards exist and that they are time-sensitive, and leave them a route to the account
- Size the liquidity problem, both the exercise cost and the inheritance tax, and decide how it gets funded
- For private company equity, read the shareholder agreement for what happens at death, because it may not be what you assume
Bring the plan documents to the first meeting and we will work through them with you. If a liquidity event is coming or has recently happened, see sudden wealth planning. The first consultation is free.
Frequently Asked Questions
What happens to my vested stock options when I die?
The equity plan decides, not your will. Most plans give an estate a window to exercise after death, commonly twelve months, and some are considerably shorter. If the window closes unexercised, the options expire and the value is simply gone. The problem is that probate frequently takes longer than the window: an executor must be appointed, locate the grant documents, work out what is held, find the cash to exercise, and then act. Families routinely discover the awards after the deadline has passed.
Can I put my stock options in my revocable living trust?
Often you cannot. Most equity awards are expressly non-transferable during life, with an exception only for transfer by will or by the laws of intestacy, and an attempted transfer into a trust may be void or may forfeit the award. This is a meaningful exception to the usual advice about funding a trust, and it is one reason equity-heavy estates frequently still pass through probate. Some plans permit limited transfers or allow a beneficiary designation. The only way to know is to read the plan and the grant agreement, which we do before building the plan around them.
What happens to RSUs that have not vested yet?
In most plans unvested restricted stock units are forfeited at death and your family receives nothing for them. Some plans accelerate vesting on death, and some accelerate only partially or only after a service threshold. In a private company, RSUs often require two conditions, time served and a liquidity event, and a death before the liquidity event can leave units that are technically vested as to time but will never be delivered. The plan document is the only place the answer exists.
Does Pennsylvania inheritance tax apply to stock options and RSUs?
Yes. Pennsylvania inheritance tax reaches the property of a Pennsylvania resident at death, and vested equity is property. It is taxed at 0 percent to a surviving spouse, 4.5 percent to children over 21 and other lineal descendants, 12 percent to siblings, and 15 percent to everyone else. For options the taxable value is generally the spread between the exercise price and the value at death, and for delivered shares it is the share value. The tax is due nine months after death with a 5 percent discount for payment within three months, which can arrive well before the equity itself becomes sellable.
My equity is in a private company. Does that change things?
It makes everything harder, in three ways. The shares are usually subject to transfer restrictions, rights of first refusal and sometimes a company right to repurchase at death, often at a formula price rather than at what the shares are worth. There is no market, so there may be a tax bill on an asset nobody can sell. And valuation is contestable, which means the number your estate reports is a position rather than a fact and should be supportable. Planning for private company equity is a different exercise from planning for publicly traded shares.
Can my spouse or my agent exercise my options if I become disabled?
Only if your power of attorney gives authority that clearly covers it, and many do not. Pennsylvania requires certain powers to be granted expressly rather than inferred from general language (20 Pa.C.S. section 5601.4), and a general financial power of attorney drafted without equity compensation in mind may leave your agent unable to act. Some plans also impose their own requirements on who may exercise on a holder's behalf. Both the power of attorney and the plan have to permit it, and this is simple to fix in advance and impossible to fix afterward.
Do I need a trust because of my equity?
Not usually because of the equity itself, and sometimes the equity is a reason to be careful with a trust. The more common need is coordination: making sure an executor knows the awards exist, has authority to act quickly, and has access to cash to exercise. Where a trust does hold a large concentrated position in one employer's stock, a trustee has duties about prudence and diversification that the trust instrument should address directly, or the trustee is exposed for holding what you deliberately wanted held.