RSUs and Estate Planning: How To Include RSUs In Your Will Or Trust‍

Casey Fenton

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December 7, 2023

Take a moment to imagine this scenario: You're at the pinnacle of your career, navigating board meetings by day and enjoying family dinners by night. Your efforts have not only earned you a comfortable lifestyle but also a portfolio that includes a significant chunk of Restricted Stock Units (RSUs). One day, you're suddenly faced with life's most unpredictable event—a fatal accident. Your RSUs, the fruit of your hard-earned labor, now hangs in the balance.

What happens next? If you haven't planned for such an unfortunate scenario, you leave behind not just your memories, but also a legal labyrinth for your family to navigate. RSUs can be a significant part of your financial legacy, and just like your other assets, they should be carefully managed for the day you're not here to do it yourself. 

This comprehensive guide aims to arm you with the knowledge and steps you need to include your RSUs in your last will or trust, so your financial legacy remains as you intended.

Can I Add RSUs in My Will or Trust?

Yes, you can include RSUs in your will or trust. The process can differ based on various factors, such as state laws and your employer's policy

A will is a legal document that specifies how you want your assets to be distributed after your death. A trust, on the other hand, is a legal entity that holds assets for the benefit of specific individuals or entities. Both can include RSUs but they offer different advantages and limitations.

If you choose a will, your RSUs will go through the probate process, which could be lengthy and public. However, wills are generally easier and less expensive to set up.

On the other hand, if you opt for a trust, you can bypass the probate process, offering more privacy and speed in asset distribution. Trusts can be more complex and costly to establish but offer greater control.

Before adding RSUs to your will or trust, consult the grant agreement or your employer's policy to ensure there are no restrictions that may prevent the transfer of RSUs to a trust or inclusion in a will.

Just as significant as the planning is considering how including RSUs in your will or trust aligns with your other estate planning tools, like Power of Attorney or healthcare directives. An integrated approach ensures that your estate plan is comprehensive and leaves no room for ambiguity.

What Can Estate Planning Do to My RSUs?

Estate planning is a powerful tool that can significantly influence what happens to your RSUs after your death. From tax implications to vesting schedules, a well-crafted estate plan can ensure that your RSUs serve your intended financial goals even when you're not around.

1. Maximizing Tax Efficiency

When RSUs vest, they are considered income and are subject to taxes. A carefully structured estate plan can minimize the tax burden for your beneficiaries by leveraging various tax-planning strategies, such as gifting RSUs during your lifetime or choosing optimal times for the RSUs to vest.

2. Protecting Your Assets Through Trusts

Specific types of trusts, like a Revocable Living Trust or an Irrevocable Trust, can provide layers of protection against creditors or legal claims. Placing your RSUs in such trusts can ensure that your assets are safe and are distributed according to your wishes without the hassle of going through probate.

3. Controlling Distribution

Estate planning allows you to specify the terms under which your beneficiaries can gain control of the RSUs. You can set age limits, milestone-based distributions (like graduating from college), or other conditional scenarios that align with your financial and personal values.

4. Harmonizing With Other Investments

Your RSUs are likely a part of a larger financial portfolio that may include real estate, mutual funds, or other securities. A well-thought-out estate plan helps you balance the distribution of all these assets cohesively, ensuring that the value of your estate is maximized for your beneficiaries.

5. Addressing Potential Company Restrictions

Some companies have strict policies regarding the transfer of RSUs, especially to a trust. Your estate plan should consider these constraints and explore alternative pathways, like the use of a Testamentary Trust created through a will, to ensure your wishes are fulfilled.

What Will Happen to My Unvested RSUs When I Die?

Generally, unvested RSUs are forfeited upon death. However, this isn't a one-size-fits-all answer, as the fate of your unvested RSUs largely depends on your employer's specific policies and the terms of your RSU grant agreement. Here's what you should know:

  • Employer's Discretion and Plan Document: Your RSU agreement usually states what happens to unvested RSUs upon death. In some cases, your employer may offer a provision for accelerated vesting, where the vesting schedule is expedited so that your heirs or estate can receive the benefit of the RSUs.

  • Spousal Transfer and Community Property States: If you reside in a community property state and are married, your spouse may have a legal claim to a portion of your RSUs, including unvested ones, unless there are explicit agreements stating otherwise. This can sometimes extend to what happens to these RSUs upon your death.

  • Tax Implications for Heirs: If your unvested RSUs do vest after your death, the resulting income can create a tax liability for your heirs. Understanding these tax implications is critical when planning for the inclusion of RSUs in your estate.

  • The Role of Executors and Trustees: In the event that your unvested RSUs are transferred to your estate or a trust, the executor of your estate or the trustee of your trust will be responsible for managing these assets. This can include making decisions about when to sell the RSUs, based on what is in the best interest of the estate or the beneficiaries.

Given that company policies can change, it's essential to review your RSU agreements regularly. Make sure you update your estate plan to reflect any changes in how unvested RSUs are handled upon your death.

Steps to Including RSUs in Your Will or Trust

Including RSUs in your will or trust is a multi-step process that requires careful planning and consultation with legal experts. Here’s how you can go about it:

Step 1: Understand Your RSU Agreement

Before you include RSUs in your estate plan, you need to understand the terms and conditions outlined in your RSU grant agreement. Pay special attention to clauses that mention transferability, vesting schedules, and what happens to the RSUs upon your death.

Step 2: Consult an Estate Planning Attorney

It's crucial to consult an experienced estate planning lawyer to navigate the complexities of wills and trusts, especially when it comes to including RSUs. They can help identify the best methods for your unique circumstances.

Step 3: Choose Between a Will and a Trust

After consulting an attorney, decide if you want to include your RSUs in a will or a trust. Both have their pros and cons, as discussed earlier. Your choice can affect how quickly your beneficiaries gain access to the RSUs and the tax implications.

Step 4: Draft the Necessary Documents

Once you’ve made your choice, your attorney will draft the necessary legal documents to include your RSUs in your will or trust. Be meticulous in providing all the relevant details to avoid any complications down the line.

Step 5: Address Tax Considerations

RSUs are subject to income tax upon vesting. Talk to your attorney about ways to minimize the tax impact for your beneficiaries. This could include specific trust structures or gifting strategies.

Step 6: Notify Your Executor or Trustee

Make sure your executor or trustee is aware that RSUs are part of your estate and provide them with all the necessary information to manage these assets in your absence.

Step 7: Keep Documents Updated

Companies evolve, life circumstances change, and laws are revised. Regularly review and, if necessary, update your will or trust to make sure it still serves your wishes, especially regarding your RSUs.

Step 8: Communicate Your Wishes to Beneficiaries

This step is often overlooked but is essential. Make sure your beneficiaries are aware that they stand to inherit RSUs and prepare them for any responsibilities they may have to shoulder, like tax liabilities.

How to Talk to My Lawyer Regarding RSU Inclusion in My Estate Planning

Talking to your lawyer about including RSUs in your estate plan is a critical step, but it can also be daunting if you’re not prepared. Here are some guidelines to ensure that your conversation is as productive as possible:

Step 1: Prepare the Necessary Documents

Before your meeting, gather all essential documents related to your RSUs. This can include grant agreements, vesting schedules, and any communications from your employer regarding RSUs. This will give your lawyer a complete picture of what they are working with.

Step 2: Understand Your Own Goals

Have a clear understanding of what you wish to accomplish by including RSUs in your estate plan. Whether it's providing long-term financial security for your spouse, dividing assets among multiple beneficiaries, or philanthropic giving, your goals will guide the legal strategy.

Step 3: Be Transparent About Your Financial Situation

To craft the most effective estate plan, your attorney will need a comprehensive view of your financial landscape. Don't hold back on sharing details about other assets, liabilities, or commitments you might have.

Step 4: Ask Specific Questions

Prepare a list of questions you have about the legal process, tax implications, or any other concerns. The more specific you are, the better advice you will receive. For example, ask how RSUs will be taxed upon vesting after your death, or how they could be distributed among multiple beneficiaries.

Step 5: Discuss Potential Scenarios

Discuss various scenarios where your RSUs will be impacted, such as what happens if they haven't vested by the time of your death. Talk about contingencies and how you’d like these situations to be handled.

Step 6: Explore Tax-Optimization Strategies

This is an excellent opportunity to explore any tax-efficient strategies to maximize the value of RSUs for your beneficiaries. Your lawyer can suggest tactics such as specific trusts that could defer or minimize the tax burden.

Step 7: Get a Timetable

Before you leave, get a clear timetable from your attorney on when you can expect drafts for your review, and when each element of your estate plan, including the RSUs, will be finalized.

Step 8: Keep the Lines of Communication Open

Estate planning is not a one-off task. Keep your lawyer updated on any changes to your RSUs, such as vesting events or new grants, so that your estate plan can be revised as necessary.

Can You Donate RSUs After Your Death?

Yes, you can donate RSUs after your death, but the process is subject to specific rules, regulations, and the terms of your RSU grant agreement. Here are some key points to consider if you're interested in bequeathing your RSUs to a charitable organization:

  • Check Your RSU Grant Agreement: Before making plans to donate your RSUs, consult your RSU grant agreement to see if it allows for a transfer to charitable organizations upon your death. Some agreements may have restrictions on such transfers.

  • Tax Benefits: Donating RSUs to charity can offer significant tax advantages for your estate. Under certain conditions, the value of the RSUs may be deductible from your estate’s gross income, reducing the estate tax liability. However, the rules around this are complex and subject to change, so consult your lawyer and tax advisor for specifics.

  • Direct Charitable Giving vs. Charitable Trusts: You can either bequeath RSUs directly to a charitable organization or use a more structured approach like a Charitable Remainder Trust. A trust can provide income to beneficiaries for a set period before distributing the remaining assets to a charity, offering both personal and philanthropic benefits.

  • Work With the Charity: Charities may have experience in accepting stock options or RSUs as gifts but verify this in advance. Working directly with the charitable organization can ensure that the donation process is handled smoothly and that the charity is prepared to accept and manage the RSUs.

  • Estate Planning Mechanisms: Various estate planning mechanisms can help you accomplish your philanthropic goals. For example, you could specify the conditions of the donation in your will or trust, ensuring that the RSUs are used in a way that aligns with your intentions.

  • Update Your Estate Plan: As always, keep your estate plan updated to reflect any changes in your RSUs or charitable goals. Regularly review your will or trust to make sure that all assets, including RSUs, are accounted for and directed according to your current wishes.

Final Thoughts

Your RSUs are a valuable asset, and they deserve the same careful planning that you would give to any other part of your estate. By taking proactive steps now, you can ensure that they contribute to your legacy in the way you intend. Now that you know how to include RSUs in your estate planning, consult your financial advisor and estate planning attorney to get started. Secure not just your future, but that of those who matter the most to you.

Remember, estate planning is not a one-time event but an ongoing process. Make sure to keep your will or trust updated to reflect any changes in your RSU portfolio. Your heirs and beneficiaries—will thank you for this foresight and your generosity.

To know more about RSUs and how you can maximize your returns toward a fulfilling financial future, feel free to browse similar content on Upstock’s blog and learning materials page.

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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