Integrating Equity Compensation into a Generational Estate Strategy
Amassing enough wealth to safeguard children, grandchildren, and beyond is a remarkable accomplishment. Yet without deliberate estate and tax planning—and clear family dialogue—those hard-won assets can erode quickly. When your net worth includes stock options, RSUs, or other equity awards, the technical layers multiply: vesting schedules, liquidity constraints, and basis rules all affect how much actually reaches the next generation.
Below we outline the major wealth-transfer tools, show where equity compensation fits in, and flag tax trip-wires so your legacy can compound, not dissipate.
Wealth-Transfer Pathways
Broadly, assets pass in one of two ways:
During life — through gifts
At death — through your estate
Each route carries distinct tax consequences, planning tactics, and family-governance trade-offs.
Transfers at Death
The federal estate-tax exemption is historically high: $13.61 million per individual in 2024 (projected $13.99 million in 2025). Married couples can combine exemptions, shielding up to $27.22 million. Amounts above that face a progressive estate tax that tops out at 40 percent.
| Amount Over Exemption | Base Tax | Marginal Rate |
|---|---|---|
| $1 to $10,000 | $0 | 18% |
| $10,001 to $20,000 | $1,800 | 20% |
| $20,001 to $40,000 | $3,800 | 22% |
| $40,001 to $60,000 | $8,200 | 24% |
| $60,001 to $80,000 | $13,000 | 26% |
| $80,001 to $100,000 | $18,200 | 28% |
| $100,001 to $150,000 | $23,800 | 30% |
| $150,001 to $250,000 | $38,800 | 32% |
| $250,001 to $500,000 | $70,800 | 34% |
| $500,001 to $750,000 | $155,800 | 37% |
| $750,001 to $1,000,000 | $248,300 | 39% |
| $1,000,001 and up | $345,800 | 40% |
State-Level Drag
Eighteen jurisdictions layer on their own estate or inheritance tax, some with exemptions as low as $1 million.
| Jurisdiction | Estate Tax | Inheritance Tax |
|---|---|---|
| Connecticut | ✓ | |
| Hawaii | ✓ | |
| Illinois | ✓ | |
| Iowa | ✓ | |
| … | … | … |
| Washington | ✓ |
If you live—or own real property—inside one of these borders, your estate could face a “double tax.” Several states also impose a cliff rule: exceed the exemption by even a dollar and the entire estate is taxed.
Who Actually Pays?
Estate tax is levied on assets before heirs receive them; the executor files Form 706 and remits any balance due from the estate’s liquidity. For inheritance-tax states, the recipient pays. Either way, available cash or an insured funding strategy is critical.
Lifetime Gifting
The IRS lets you shift wealth gradually through the annual exclusion—$18,000 per recipient in 2024 ($19,000 in 2025). Married couples can “split” gifts and double the figure. Overages aren’t taxed immediately; they simply reduce your lifetime gift-and-estate bucket, which mirrors the $13.61 million exemption.
Certain payments—tuition made directly to a school, qualified medical bills, gifts to charity or political organizations—never count against the limits.
Cost-Basis & Step-Up Rules
Inheritances enjoy a step-up in basis to the asset’s fair-market value on the date of death, wiping out prior unrealized gains. Gifts, by contrast, carry carry-over basis.
Inheritances enjoy a step-up in basis to the asset’s fair-market value on the date of death, wiping out prior unrealized gains. Gifts, by contrast, carry carry-over basis.
Example:
You acquired 5,000 private-company shares at $10 each.
They’re now worth $110.
Gift today: your child’s basis stays $10; a sale nets $100 taxable gain per share.
Bequeath at death (valuation $120): basis resets to $120; immediate sale may create little or no taxable gain.
With highly appreciated equity, waiting for a step-up can dwarf any interim gifting benefit.
Generation-Skipping Transfer Tax (GSTT)
Gifts or bequests to grandchildren (or non-relatives 37½ years younger) may trigger GSTT, which has its own $13.61 million exemption. Proper allocation of that exemption across dynasty trusts can shelter family capital for multiple generations.
Upstream Gifting
Affluent clients sometimes transfer appreciated stock “upstream” to parents whose estates are below the exemption. When the parent later passes, your children inherit with a fresh step-up—and the shares bypass your taxable estate. The tactic works only if:
Your parents’ estates remain under federal and (if applicable) state thresholds
Everyone agrees on the plan and documents it clearly (revocable trusts, wills)
You can relinquish control; once transferred, the asset is legally theirs
Sunset Alert
Absent new legislation, the Tax Cuts and Jobs Act enhancement expires after 2025. The unified exemption could fall to roughly $7 million per person (indexed). Wealthy equity-holders may wish to “use it or lose it” by locking in today’s higher limits through strategic gifts or trust funding before the deadline.
Where Equity Compensation Fits
| Equity Vehicle | Transferability Before Vest | Estate Consideration |
|---|---|---|
| RSUs | Generally non-transferable until vesting | Taxed as ordinary income on vest; stepped-up basis for heirs if held |
| NQSOs | Cannot transfer pre-exercise; limited exceptions | Option value included in estate; shares receive step-up if exercised and held |
| ISOs | Transfer restrictions common; check plan | May create AMT credits in estate year; qualified shares get capital-gain treatment |
| ESPP Shares | Freely transferable once purchased | Treated like any other stock; gifting triggers carry-over basis |
Beneficiary Designations
If your plan allows, name primary and contingent beneficiaries for vested shares or in-the-money options. Beneficiary forms override wills, speed settlement, and may allow heirs to exercise or liquidate under extended timelines.
Building Your Multigenerational Blueprint
Inventory everything—traditional assets, private shares, vested/unvested grants.
Model estate and gift taxes under both current and post-sunset exemptions.
Pair assets with transfer vehicles (outright gifts, GST-exempt dynasty trusts, SLATs, GRATs, ILITs) to align tax efficiency, control, and family governance.
Coordinate liquidity for estate tax or option-exercise costs—life insurance, credit lines, or staged share sales.
Communicate—clarify intentions with heirs, trustees, and corporate plan administrators to avoid surprises.
Ready to Future-Proof Your Family Wealth?
At Falcon Wealth Planning, we weave equity-compensation expertise into comprehensive estate designs—minimizing tax drag today, safeguarding capital for tomorrow, and honoring the values that define your legacy. Schedule a confidential consultation to start crafting your multigenerational strategy.
This content is for informational purposes only and should not be construed as individualized investment, tax, or legal advice, or as an offer to buy or sell any security. Information is believed accurate but is not guaranteed. All investments involve risk, including loss of principal. Past performance does not predict future results. Consult your own advisers regarding your specific circumstances. Falcon Wealth Planning, Inc. is a fee-only Registered Investment Adviser.
