Estate Planning for Tech Employees With Equity Compensation (2026 Guide)

Equity compensation creates estate planning complexity that most generalist estate attorneys aren't aware of: different tax rules at death for RSUs versus ISOs versus NSOs, unvested grants that may or may not accelerate, QSBS holding periods that can be inherited, and concentrated single-stock positions that benefit from the step-up-in-basis rule in ways cash savings don't. This guide covers the mechanics, the tax rules, and the strategies that matter most.

The #1 insight: step-up in basis is your estate's best friend

Under IRC § 1014, assets included in a decedent's estate receive a "step-up" in basis to fair market value on the date of death.¹ For a tech employee with a large position of appreciated employer stock, this is transformative.

For a concentrated tech-company position that has appreciated significantly, the estate-planning strategy is often "hold, don't sell" — precisely because the step-up eliminates capital gains at death. The tradeoff is concentration risk (a position that drops 60% before you die is still a taxable estate asset at the lower value).

What happens to each equity type at death

Vested RSU shares (already in your brokerage account)

These are ordinary investment shares. You recognized ordinary income at vest; your cost basis equals the FMV on the vest date. At death, § 1014 steps up the basis to the date-of-death FMV. Heirs inherit with no capital gains on pre-death appreciation. Any gain after the date of death is taxed as LTCG when sold (with a holding-period "clock reset" — all inherited assets qualify for long-term rates regardless of how long the heir holds them).²

Unvested RSUs (not yet vested at death)

This is where most tech employees have a gap in their planning. Unvested RSUs that haven't been delivered yet are classified as Income in Respect of a Decedent (IRD). IRD items are included in your taxable estate at their FMV, but the § 1014 step-up does not apply to them — your heirs will owe ordinary income tax when the shares are eventually delivered.³

The partial relief: heirs can take a § 691(c) deduction for the portion of estate taxes paid that is attributable to IRD items. If your estate paid 40% estate tax on $500K of unvested RSU value, and your heir later receives those shares as ordinary income, they can deduct the $200K of estate tax allocated to that income against their income tax — reducing (but not eliminating) the double-tax burden.

What happens to unvested RSUs operationally: Most companies (~75%) provide for full or partial acceleration of unvested RSU awards upon death.⁴ The grant agreement controls, not the company's oral representations. With acceleration, unvested shares vest immediately and are delivered to your estate or a named beneficiary — taxed as ordinary income to the recipient. Without acceleration, unvested grants typically forfeit (the estate receives nothing). Read your grant agreement and designate a beneficiary on every RSU award.

Exercised ISO shares (held in brokerage account after exercise)

ISOs that have already been exercised and held as shares receive favorable treatment at death under Treasury Regulations § 1.421-2(c):⁵

• The § 1014 basis step-up applies — heirs inherit at date-of-death FMV
• The qualifying-disposition holding-period requirements (2 years from grant, 1 year from exercise) do not apply after death — heirs can sell immediately and still get long-term capital gains treatment
• No disqualifying disposition occurs upon transfer of the shares to the estate or heirs

If you exercised and held ISOs that have since appreciated dramatically, and you die before the 2-year/1-year holding period is satisfied, your heirs receive better treatment than you would have gotten — all gains are LTCG, zero ordinary income.

Unexercised ISOs and NSOs (options not yet exercised)

Unexercised options that haven't yet been exercised are IRD items. The estate-tax rules:

The § 691(c) IRD deduction applies to both: heirs can deduct the estate-tax portion attributable to the options' IRD value against the income they recognize when exercising and selling.

QSBS shares (Section 1202 qualified small business stock)

QSBS passes through an estate with favorable treatment under § 1202(h)(2): your heirs inherit your original holding period.⁶ If you owned the stock for 3.5 years before death, your heir takes it at 3.5 years and can reach the 5-year 100% exclusion by holding 1.5 more years. The QSBS character (C-corp original issuance, under $50M assets at issuance) is preserved.

One unsettled issue: how the § 1014 basis step-up at death interacts with the § 1202(b)(1)(B) "10× basis" exclusion cap. If your original basis was $50K and the stock stepped up to $2M at death, practitioners disagree on whether the 10× multiplier uses $50K (original) or $2M (stepped-up). No controlling IRS guidance as of June 2026. If your estate holds valuable QSBS, discuss this with an estate attorney and your equity advisor before assuming an exclusion amount. TODO-verify: 2026-06-12 — IRS has not issued guidance on §1202/§1014 interaction at death

2026 federal estate tax: who is actually affected

The One Big Beautiful Bill Act (OBBBA, signed July 2025) permanently increased the basic exclusion amount to $15,000,000 per person for 2026 — $30,000,000 for a married couple using portability.⁷ The estate tax rate is 40% on amounts above the exemption.

For most tech employees, the estate tax won't apply: even a senior engineer with $2M in equity, a $1.5M house, and $500K in retirement accounts is well below the $15M threshold. But for executives with $5–30M in employer stock, multi-year QSBS gains, and a home in a high-cost market, estate tax planning matters — especially for the portion of the estate above $15M.

Who might be affected:

• Founders who still hold significant QSBS through an IPO and have a large position
• Executives at FAANG companies who have accumulated $10M+ in vested equity over 10–15 years
• Pre-IPO employees with $10M+ of exercised ISOs that have appreciated substantially
• Employees who also have a large real estate portfolio, private investments, or business interests alongside their equity comp

Annual gifting of appreciated stock

The 2026 annual gift exclusion is $19,000 per recipient ($38,000 for a married couple using gift-splitting).⁸ You can give appreciated stock (not just cash) to each recipient gift-tax-free each year — permanently removing that value from your estate.

Strategy for concentrated stock: Instead of selling employer stock, gifting it to family members moves the concentrated position out of your estate without triggering capital gains at transfer. The recipient takes your basis (no step-up on lifetime gifts) and pays capital gains if and when they sell. For younger recipients in lower tax brackets, gifting appreciated stock lets the appreciation be taxed at 0–15% LTCG rates instead of your top marginal rate of 20% + 3.8% NIIT.

529 superfunding: You can front-load 5 years of annual exclusion gifts into a 529 plan ($95,000 per child; $190,000 per couple per child) and spread it across five years for gift-tax purposes. Funding a 529 with appreciated stock is one of the few ways to combine the annual exclusion, capital gains deferral, and eventual tax-free growth in a single move.

GRAT: the advanced tool for executives with large concentrated positions

A Grantor Retained Annuity Trust (GRAT) is designed to transfer anticipated appreciation out of your estate to heirs with minimal gift tax. You transfer appreciated stock into the GRAT, receive fixed annuity payments back over the trust term (plus the IRS § 7520 hurdle rate), and when the term ends, any growth above the hurdle rate passes to your beneficiaries.

The structure works best when:

• You have a large block of employer stock expected to continue appreciating (FAANG RSU grants, pre-IPO stock ahead of an expected liquidity event)
• The stock price is temporarily depressed (a low-basis position after a stock pullback is a classic entry point)
• The IRS § 7520 rate (the hurdle) is relatively low — less hurdle for heirs to clear

GRATs are most commonly set up with the help of an estate attorney working alongside your equity advisor, as the optimal trust term, annuity amount, and asset selection depend heavily on your specific equity comp profile and overall estate.

Beneficiary designations: the most commonly missed estate planning item for tech employees

Wills do not control equity awards. Your RSU grant agreement, brokerage account, 401(k), and IRA each have a separate beneficiary designation that supersedes whatever your will says. A will can direct your estate's assets — but assets with named beneficiaries pass outside the estate entirely.

Common failure modes:

• No beneficiary on RSU awards: Many tech companies allow (and require) a beneficiary designation on the equity plan itself. Without one, vested and accelerated-unvested shares go through probate — a slow, expensive process particularly in California (where probate fees are set by statute as a percentage of estate value).
• Stale 401(k) beneficiary: A 401(k) beneficiary set before marriage or after a divorce that was never updated can direct a retirement account full of RSU-income proceeds to the wrong person, regardless of divorce decrees or subsequent wills.
• IRA beneficiary confusion: SECURE 2.0 introduced the 10-year rule for most non-spouse inherited IRAs. Getting the beneficiary designation wrong (naming a trust without qualified-designated-beneficiary provisions, for example) can eliminate the stretch option entirely.

Action item: Log into every account (brokerage, 401k, IRA, employer stock platform) and confirm beneficiary designations are current. Do this once a year at your year-end equity review, or whenever a life event (marriage, divorce, birth of a child) changes your intent.

Revocable living trust: worth considering if your equity estate is large

A revocable living trust avoids probate, allowing assets to transfer to heirs quickly and privately after death. For California residents — and most of the core audience here — probate fees are statutory and significant: the fee schedule starts at 4% of the first $100K, dropping to lower percentages on larger amounts, but adds up quickly on a $2M+ estate.

A living trust also:

• Gives you a clear mechanism for managing assets if you become incapacitated (the successor trustee takes over)
• Allows specific instructions for equity comp scenarios — e.g., "do not exercise unexercised ISOs until an equity advisor has modeled the tax impact"
• Avoids the public court record that probate creates (important for privacy-minded executives)

A "pour-over will" alongside the trust catches any assets not formally titled in the trust's name, so that they eventually flow into the trust through a simplified probate process.

Estate planning checklist for tech employees with equity comp

Why a generalist estate attorney isn't enough

A good estate attorney understands wills, trusts, and the estate tax — but may not know that unvested RSUs are IRD items (not eligible for step-up), that unexercised ISOs avoid the 90-day post-termination rule at death, or how to coordinate a GRAT funding decision with a 10b5-1 trading plan to avoid insider-trading exposure while diversifying the position. The decisions at the intersection of equity comp and estate planning require both a qualified estate attorney and an advisor who works specifically with tech employees and equity compensation.