Probate & Trust Law Section Conference Manual ... - Minnesota CLE

The Well-Prepared Executive: Personal Wealth Preservation Strategies
TABLE OF CONTENTS
I. INTRODUCTION 1
III. STOCK OPTION PLANS 3
A. Description 3
B. Incentive Stock Options 3
1. Executive’s Income Tax Consequences 3
a. Grant 4
b. Exercise 4
c. Sale of Stock 4
2. Example of ISO Income/Capital Gains Tax Consequences 4
3. Holding Period Requirement and Disqualified Dispositions 4
4. Alternative Minimum Tax Issues 5
a. AMT Adjustment 5
b. AMT Credit 5
c. Avoiding the AMT Issue: ISOs Immediately Exercisable 5
d. Minimizing AMT by Periodic ISO Exercises 5
e. Equalizing Regular Tax and AMT Liability 5
f. Drop in Stock Price: Exercising Before Year-End 5
5. ISO Requirements 6
a. Employees of Granting Corporation or Affiliated Corporation 6
(1) Employees Only 6
(2) Termination of Employment 6
(3) Death of ISO Holder 6
(4) No Nondiscrimination or Coverage Rules 6
(5) Employer Corporations Only 6
b. Fair Market Value Exercise Price 6
(1) Greater than 10% Shareholders 6
(2) Determination of Fair Market Value 7
(3) Effect of Restrictions on Stock 7
(4) Grant Date 7
(5) Conditional Grants 7
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II. RESTRICTED STOCK PLANS 1
A. Description 1
B. Executive’s Income Tax Consequences 1
1. Grant 1
a. Purchase of Unvested Stock for Fair Market Value 1
2. Disposition Prior to Vesting 1
3. Vesting 1
a. Stock Restrictions are Ignored in Determining Value 1
b. Minority and Lack of Marketability Discounts 2
4. Sale of Stock 2
5. IRC § 83 (b) Election 2
6. Imposing Vesting Provisions on Previously Owned Stock Protective IRC § 83 (b)
Election
2
C. Summary of Restricted Stock Advantages 3
D. Summary of Restricted Stock Disadvantages 3