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WHAT CLIENTS—AND YOU—
NEED TO KNOW ABOUT STOCK OPTIONS
Understand the tax implications and how to help executors
by DEAN DiSPALATRO, senior editor of Advisor Group
ONE OF YOUR BEST CLIENTS JUST GOT
promoted, and her compensation package includes stock options. To factor them into her plan, you need to understand how options work, how they’re taxed, and what will happen to them when she dies.
Package components
There are almost as many stock option plans as companies that offer them. To understand the one your client has, familiarize yourself with key concepts.
Options
A stock option is an agreement between your client and her employer that gives her the right to purchase company stock at some future date, at a price determined at the time of the agreement.
Say the company’s trading at $20 per share when the options are granted. The agreement may say that, four years from now, she has the right to buy 100,000 shares at $20.
If the shares are trading at $35 in four years, she can make $15 per share on 100,000 shares if she exercises her options (by buying the shares) and then immediately sells the stock. 28
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