We have developed a technique called the Family Stock Option Plan (FSOP) that can significantly improve the net amount that will pass to your heirs.  The United States Patent and Trademark Office issued Patent #6,567,790 on May 20, 2003 for this technique.  Using our SOGRAT® software, we can illustrate the financial improvements than can be achieved.


A U. S. Patent does not imply approval by the IRS.  Always seek the advice of a qualified tax professional.


Highlights and Benefits of this Technique


·        Shift future appreciation of your options outside of your taxable estate.

·        Remain in total control of your options.

·        No transfer tax cost.

·        Reduced estate tax.

·        Creditor protection for your family.

·        Guarantees that your options receive full value, including time value, if you die and your employer accelerates the option exercise date.

·        Allows you to share the wealth with your heirs during your lifetime without gift taxes.


Non-Qualified Stock Options & What You Should Know


An option is the right to purchase stock at a fixed price.  A non-qualified stock option is an option that does not receive preferential tax treatment and is considered the equivalent of cash compensation.  Non-qualified stock options are subject to ordinary income taxes and employment taxes when the options are exercised.  This results in the option holder paying 40% or more in taxes.  The company takes a tax deduction on the spread (difference) between the grant price and the market price upon exercise.


The after tax proceeds from the option exercise will be included in the taxable estate at death and is likely to be subject to a 50% estate tax.  Through death, the option holder will pay 70% or more in taxes leaving only 30% or less of the option value to heirs. 


Most option plans require exercise of the options within 6 months of the date of death of an option holder.  If the option holder dies, the 40% income tax and the 50% estate tax will be due immediately, and the executive’s family will not be allowed to hold the options to their natural maturity.  In some circumstances, 7, 8 or even 9 years of future option growth will disappear because the options must be exercised within 6 months of death.  Not only has the family lost 70% of the options’ current value in the form of taxes, but they have lost out on any appreciation of the option that occurs after the 6 month mandatory exercise.


For more information, please call us at 407-339-5787.


Option Terminology


Stock Option – the right, but not the obligation, to purchase a specific number of shares at a fixed price for a predetermined period of time regardless of how much the stock price fluctuates.

Incentive Stock Option (ISO) – a type of stock that qualifies for preferential tax treatment provided that the option holder holds the stock one (1) year and one (1) day after exercise and two (2) years after the date of rant, whichever is later.  Under current tax, the employee pays no taxes at exercise and will be subject to capital gains tax if the holding requirements are met.  Exercise of ISOs may subject the employee to AMT (Alternative Minimum Tax).  The company does not receive a tax deduction for this form of compensation.  Incentive stock options are for the optionee only and cannot be transferred.

Non-qualified Stock Option (NQSO) – an option that does not receive preferential tax treatment and is considered the equivalent of cash compensation.  Option holder pays payroll and income taxes at the time of exercise and, if they hold on to the stock, are subject to capital gains treatment when the stock is sold.  The company takes a tax deduction on the spread between the grant price and the fair market value upon exercise.

Alternative Minimum Tax (AMT) – a tax calculation that may subject an employee exercising incentive stock options to taxes that otherwise would not be due.

Exercise Date – the date you take stock ownership of your shares by converting an option to a share of company stock.

Exercise Price – the price you pay when you exercise the option (also referred to as the grant price or strike price).

Expiration Date – the last date you are able to exercise your stock option; the option will have no value after this date.

Fair Market Price – the amount a company’s stock is worth on a given day and time; in terms of shares purchased through the exercise of a stock option, refers to the trading price on the appropriate exchange at the time of exercise.

Exercise – to take ownership of shares granted through an option.  For incentive, non-qualified, and ESPP plans, this requires a purchase.  In the case of restricted stock, it requires meeting the terms of the vesting schedule.

Strike Price – the stated price per share for which underlying stock may be purchased by the option holder upon exercise of the option contract.



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