By Charles Steege, SFG Wealth Planning

Forty-eight-year-old Christopher was senior vice president of security at a real estate search company when he died unexpectedly in a tragic car accident. Now his wife, Denise, 48, needs help to understand how her late husband’s performance share units (PSUs) will be handled.

While Christopher was working, Denise took time off to care for their two kids. She also maintained her CPA license and worked on annual tax returns for family members and friends. After Christopher’s death, she is now considering joining an accounting firm, which has been pursuing her for some time.

Life is risky. We all know we could die unexpectedly due to an accident, health condition or natural disaster, but few of us want to think about it.

How prepared would your spouse be to navigate your equity compensation? What would happen to your performance shares or restricted stock units if you died tomorrow? Have you talked with your spouse and your financial advisor about protecting your family’s financial security in the case of a sudden death?

Understanding the details of your stock incentive plan can bring peace of mind to you and your spouse. At any age, you can use that information as part of your overall planning to ensure your family has adequate cash flow and financial resources in the months and years after your death.

At the time of Christopher’s death, he had 3,000 PSUs granted. He received the PSUs on Jan. 1, 2013, and they were expected to fully vest on Jan. 1, 2016, as long as all the performance metrics were met. Potentially, vesting could reach up to 200 percent if the performance exceeds the target. Christopher died in January 2015.

The company’s board of directors reviewed the performance metrics for the fiscal year and determined that his and the company’s performance reached 125% of the target. Therefore, Denise should receive 2,475 PSUs (3,000 x 1.25 x 0.66).

Some companies have stock incentive plans that permit 100 percent accelerated vesting if the award holder dies, so the surviving spouse can receive the full amount. In that case, Denise would receive 3,750 PSUs (3,000 x 1.25).

Read your employer’s plan document to find out the exact rules for vesting.  Then reach out to your financial advisor to schedule an appointment to discuss contingency planning and financial preparation.

Denise came up with a list of questions to ask her financial advisor at their next meeting:

  1. In the event of death, does the plan provide pro rata vesting (based on the portion of the time period completed) or accelerated vesting?
  2. Does the plan specify a payout at the end of the performance period based on actual performance, or a payout upon death based on an assumed performance level?
  3. Do I need official paperwork from the board of directors to verify that the performance targets were met?
  4. How will this new income be taxed? Will the employer withhold some of the taxes?

Mr. Steege is President of SFG Wealth Planning Services, Inc., SFG Investment Advisors, Inc. (SFG), a fee-only financial planning firm. Founded in 1993, SFG is dedicated to assisting senior executives and their employees with their complex stock-based compensation and planning challenges.


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