Executive Estate Planning: Concentrated Stock, NQDC, and the $15M Exemption

Standard estate planning advice — fund a revocable trust, update beneficiary designations, maybe gift $19,000 per donee per year — is a starting point for executives, not an ending point. The combination of concentrated employer stock, deferred compensation balances, unvested equity awards, and large life insurance policies creates an estate tax and income tax profile that standard planning doesn't address. The same decisions that minimized your income taxes during your career can silently create a 60%+ combined tax rate on what you leave your heirs if you don't plan around them.

The One Big Beautiful Bill Act (OBBBA, July 2025) changed the math by making the $15 million federal estate and gift tax exemption permanent — eliminating the TCJA sunset that had previously made 2025-year-end a planning deadline. But permanence doesn't eliminate the need for planning. For executives with $5–50M+ in equity, it changes the vehicles and timelines, not the underlying problems.

Why executive estates are different

A senior executive's taxable estate typically contains four categories that most generalist estate attorneys handle rarely, if ever:

1. Concentrated employer stock. An executive with $10M in a single public company stock has most of their net worth undiversified, with a low cost basis, subject to 10b5-1 and blackout restrictions on sale. It cannot simply be liquidated to fund a trust without triggering tax and compliance issues. See concentrated stock diversification strategies.
2. NQDC balances. A deferred compensation balance — even $3M in a rabbi trust — is an unfunded promise of future ordinary income. It is included in the taxable estate at death, and unlike stocks or real estate, it carries no step-up in basis. When your beneficiaries receive distributions, they pay income tax on the full amount. A $3M balance subject to 40% estate tax produces $1.8M net to the estate — and your heirs then pay income tax on every dollar distributed, reducing the effective take to 40–50 cents on the dollar.
3. Unvested equity. RSUs outstanding at death are generally included in the estate at fair market value based on the plan's acceleration provisions. Ordinary income at future vest is income in respect of a decedent (IRD). ISOs and NQOs have separate post-death exercise window rules — see executive departure planning.
4. Executive life insurance. Large personally-owned or employer-provided insurance proceeds are included in the taxable estate unless removed via an irrevocable trust.

The OBBBA $15M exemption: what changed and what didn't

Under the TCJA, the federal estate and gift tax exemption doubled but was set to sunset at the end of 2025, dropping back to roughly $7M. OBBBA made the higher exemption permanent at $15M for 2026, inflation-indexed thereafter.¹

What this means for executives:

• The 2025 urgency is gone. The hard year-end deadline to use exemption before the sunset disappeared. You no longer need to rush large gifts to beat a clock.
• The planning horizon is longer. Strategies that take time to implement — GRATs, SLATs, dynasty trusts — can be set up at a deliberate pace.
• But the problem doesn't disappear. An executive with $20M in concentrated stock, a $4M NQDC balance, and significant life insurance may still have a taxable estate above $15M. And the income tax problems — NQDC as IRD, low-basis concentrated stock — exist regardless of estate tax exposure. A $5M concentrated stock position with zero cost basis passes to heirs with a step-up and zero capital gains tax. A $5M NQDC balance does not.

GRATs for concentrated stock: how they work

A grantor retained annuity trust (GRAT) is one of the most effective tools for transferring appreciation on concentrated stock to heirs with little or no gift tax. The mechanics:

1. You transfer appreciated stock to the GRAT. The transfer is treated as a taxable gift — but a zeroed-out GRAT is structured so the present value of the retained annuity equals the transferred assets, resulting in a taxable gift of essentially zero (IRC § 2702).⁵
2. You receive annuity payments back from the GRAT over a fixed term (commonly 2–5 years for rolling GRATs). The annuity is set to return the transferred value plus the IRS §7520 hurdle rate over the term.
3. If the assets grow faster than the hurdle rate, the excess appreciation passes to the remainder beneficiaries — typically a trust for your heirs — completely gift-tax free.
4. If the assets underperform the hurdle rate, the GRAT winds down with nothing transferred. You received your assets back via annuity. You start over. No loss, just no gain.

The §7520 rate for May 2026 is 5.00% (IRS Rev. Rul. 2026-9).² This is the hurdle rate GRAT assets must beat for appreciation to pass to heirs tax-free. For a concentrated tech-stock position expected to grow at 10–15% annually, a 5.00% hurdle leaves substantial wealth transfer potential. For volatile positions, rolling 2-year GRATs — each capturing a 2-year window — reduce mortality risk (the risk of dying during the term, which causes inclusion back in your estate) and allow each upswing to be captured independently.

NQDC balances in your estate: the IRD trap

Non-qualified deferred compensation is income in respect of a decedent (IRD) under IRC § 691.³ Two distinct consequences follow:

Estate tax inclusion. Your NQDC balance is included in your taxable estate at the present value of future payments (using the plan's 409A distribution schedule). A $2M balance with a 10-year distribution schedule may be valued at $1.5–1.8M in the estate calculation — and the full nominal $2M will come out as ordinary income to beneficiaries over the schedule.

No step-up in basis. Unlike stocks or real estate, IRD items do not receive a step-up in basis at death. Your NQDC beneficiaries pay income tax on every dollar they receive at their ordinary income rates. The IRC § 691(c) deduction partially offsets this — beneficiaries can claim an income tax deduction for the estate tax attributable to the NQDC balance — but it only partially eliminates the double taxation. At typical rates: $3M NQDC, 40% estate tax, 42% combined income tax on beneficiary. The IRD deduction may save 10-12 cents per dollar. Net after both taxes: roughly 40–45 cents on the dollar.

Planning response. Spend down NQDC during retirement rather than leaving a balance at death. If you expect a large residual balance, consider naming a donor-advised fund (DAF) or charitable remainder trust as partial beneficiary — charities pay no income tax on IRD, eliminating the double taxation entirely. Charitable allocation of the IRD-heavy asset while leaving stepped-up assets to heirs is a meaningful optimization. See NQDC deferral and distribution strategy and NQDC creditor risk.

Spousal Lifetime Access Trusts (SLATs)

A SLAT is an irrevocable trust funded with your assets — RSU proceeds, diversified equity, cash after a large liquidity event — in which your spouse is a discretionary beneficiary. By transferring assets to a SLAT, you use gift tax exemption now, removing future appreciation from your estate, while your spouse can still access trust assets if needed for household expenses or emergencies.

Key risks to manage: if you divorce, access to those assets disappears entirely (irrevocable trust; your spouse controls distributions). Reciprocal SLAT structures — where each spouse funds a SLAT for the other — work but must be designed carefully to avoid the IRS reciprocal trust doctrine, which can collapse mirror-image trusts back into the estates. Timing the funding of each SLAT several months apart with different terms is standard practice to distinguish them.

SLATs work well for executives who have recently received large after-tax equity proceeds and want to move those assets into a structure that appreciates outside the estate while the household retains indirect access.

Irrevocable Life Insurance Trusts (ILITs)

If you own a life insurance policy personally, the death benefit is included in your taxable estate. An ILIT owns the policy instead. The trust is funded annually via gifts to the trust — using the $19,000 per-beneficiary annual exclusion for 2026⁴ (Crummey provisions give beneficiaries a withdrawal right to qualify the gift for the exclusion) — which the trustee uses to pay premiums. The death benefit stays out of your estate entirely.

For executives with $5–10M in total life insurance — including supplemental executive life insurance (SELI) programs or split-dollar arrangements — an ILIT can remove a meaningful block of wealth from the estate tax calculation. SERPs sometimes include employer-paid life insurance components; the same ILIT analysis applies to personally-owned coverage that coordinates with those benefits.

Dynasty trusts and multi-generation planning

The $15M GST exemption (same amount as the estate exemption, permanently set by OBBBA)⁶ can be allocated to fund a dynasty trust — allowing appreciation to compound across multiple generations without incurring estate tax at each generational transfer.

Dynasty trusts work best when funded with assets that have high expected growth. Low-basis concentrated stock is not the right instrument, because the step-up in basis is lost in the trust (unlike a revocable estate). Better approaches: sell concentrated stock via a 10b5-1 plan, pay capital gains, and contribute after-tax cash to the dynasty trust — or contribute pre-appreciation ISO shares after early exercise before a valuation inflection, starting the QSBS clock for the $15M exclusion (OBBBA). See Section 83(b) election guide.

The decision timeline: when to act

Executive estate planning isn't a one-time exercise — there are decision windows throughout a career that create outsized opportunities:

• Before IPO or acquisition: Last window for GRAT with pre-event equity, ISO early exercise + 83(b) to start the QSBS holding period, GRAT funding before the appreciation event. See pre-IPO planning.
• At large RSU vest: RSU proceeds are cash — the most natural moment to fund a SLAT, ILIT, or donor-advised fund before the money is commingled with other assets.
• During large appreciation years: Consider zeroed-out rolling GRATs on concentrated stock after a sustained run-up.
• At retirement transition: Model NQDC distribution schedule against estate exposure. If the balance will remain large at death, revise beneficiary designations to incorporate charitable allocation of IRD-heavy assets.
• Change-of-control: CoC acceleration provisions and 409A distributions create a high-complexity moment with significant estate planning interaction. See executive equity at acquisition.

1. OBBBA (One Big Beautiful Bill Act, July 2025) — permanently raised the federal estate, gift, and GST tax exemption to $15,000,000, indexed for inflation, eliminating the TCJA sunset. 2026 exemption confirmed at $15M per IRS inflation adjustments. IRS 2026 estate and gift tax adjustments.
2. IRC § 7520 — rate used to value annuities and remainder interests in split-interest trusts. May 2026 rate: 5.00% per IRS Rev. Rul. 2026-9 (IRB 2026-19). IRS § 7520 rate table.
3. IRC § 691 — income in respect of a decedent. NQDC balances are IRD: included in taxable estate, no step-up in basis, beneficiary pays ordinary income tax on distributions. IRC § 691(c) — income tax deduction for estate tax attributable to IRD. IRC § 691 via LII.
4. Annual gift exclusion $19,000 per donee for 2026, indexed from $18,000 in 2025. Non-citizen spouse exclusion $194,000 for 2026. IRS 2026 gift exclusion.
5. IRC § 2702 — special valuation rules for transfers in trust; governs GRAT annuity valuation and zeroed-out structure. IRC § 2702 via LII.
6. IRC § 2601 et seq. — generation-skipping transfer tax. GST exemption set at same amount as estate exemption ($15M for 2026) per OBBBA. IRC § 2601 via LII.

Values verified as of May 2026. OBBBA provisions and IRS § 7520 rate are current as of this date. All figures subject to future legislative change.