What to Know When Selling Equity Compensation: Strategic Questions for the UHNW Investor

When compensation shifts from salary to equity, your financial strategy must evolve accordingly. Equity compensation — whether in the form of restricted stock units (RSUs), stock options, or performance shares — has the potential to generate significant wealth.¹ However, it also introduces complexity, risk, and tax considerations that demand sophisticated financial stewardship.

For ultra-high-net-worth (UHNW) individuals, equity compensation is not merely a windfall; it often serves as a cornerstone of legacy planning, portfolio construction, and long-term wealth preservation. Effectively navigating this landscape frequently requires coordination across investment advisors, tax professionals, estate planners, and legal counsel — a role that a well-structured family office is uniquely positioned to fulfill.

Below are essential questions to consider when evaluating this powerful, yet nuanced, form of compensation.

RSUs: Understand the Timeline and the Tax Impact

Restricted stock units typically vest over time and, upon vesting, are taxed as ordinary income. This timing can create meaningful tax liabilities, particularly if a large tranche vests during a high-income year. Some companies offer net-settled RSUs, where shares are withheld to cover taxes. Key questions to ask include:

• How does my vesting schedule impact my annual tax situation?
• Should I implement a 10b5-1 plan to automate RSU sales and promote disciplined diversification?
• Under what circumstances should I sell RSUs immediately? How do I determine which RSUs to sell first?

A 10b5-1 plan allows executives and insiders of publicly traded companies to sell or buy company stock on a predetermined schedule, even while in possession of material non-public information (MNPI).

Family offices can coordinate tax-efficient liquidation strategies, portfolio diversification, and estate planning for executives with significant RSU holdings. In some cases, UHNW investors may also incorporate RSUs into charitable giving strategies, reducing taxable income while fulfilling philanthropic objectives.

Stock Options: The Decision Is in the Details

Whether you hold incentive stock options (ISOs) or nonqualified stock options (NSOs), the decision of when and whether to exercise has substantial tax and liquidity implications. ISOs may qualify for favorable long-term capital gains treatment if held for at least one year post-exercise and two years post-grant. However, they may also trigger the alternative minimum tax (AMT) if the spread between the exercise price and market value is significant. In contrast, NSOs are taxed as ordinary income upon exercise, making timing critical to minimize tax exposure. Questions to consider asking include:

• Should I exercise now to begin the capital gains holding period?
• Does early exercise of unvested options make sense from a long-term tax planning perspective?
• How do state-specific tax implications affect my decision?
• What is the actual risk-reward tradeoff between holding and selling?

Managing these decisions requires balancing cash flow, market outlook, tax exposure, and liquidity — considerations best addressed through coordinated oversight from your financial team or family office.

Equity Compensation Tax Planning: Get Ahead of the Game

Effective tax planning around equity compensation requires proactivity and precision. When engaging your tax strategy team, consider asking:

• Am I optimizing the timing of RSU sales and option exercises for tax efficiency?
• Am I able to file an 83(b) election for newly granted equity to shift future gains to capital gains treatment?
• Can I offset realized gains with tax-loss harvesting in other areas of my portfolio?

An 83(b) election allows you to pay tax on the value of restricted stock awards at the time of grant rather than at vesting, converting most of the appreciation from ordinary income to capital gain, but this election may not be made for stock options or RSUs.

This kind of multi-year, multidimensional tax planning is a hallmark of a well-run family office — integrating equity award decisions into your broader financial, estate, and philanthropic plans.

Liquidity Management: More Than Just Selling Stock

Equity does not always equate to immediate liquidity, and converting it into cash can have substantial tax consequences. Strategic liquidity planning is essential to manage tax burdens while maintaining financial flexibility. Your family office should help you evaluate:

• Can I access liquidity through stock-based loans or other strategies without triggering a taxable event?
• How do I balance liquidity needs with market volatility and vesting schedules?

Securities-backed loans allow you to borrow against stock holdings without selling, which may defer capital gains taxes while preserving upside potential. However, these loans carry margin risk; a market downturn could lead to forced liquidation.

Timing liquidity events around market cycles, income tax brackets, and vesting schedules can meaningfully impact after-tax outcomes. Executing large stock sales during a high-income year or in a declining market may result in unfavorable tax treatment or poor valuation.

Due to the interdisciplinary nature of these strategies, many UHNW individuals rely on their family office to coordinate tax-efficient liquidity solutions that align with broader estate and investment objectives.

Insider Trading: Know the Rules, Stay Compliant

As a company executive or insider, your ability to trade stock may be restricted. Blackout periods are company-mandated timeframes during which insiders are prohibited from trading to help prevent violations of insider trading laws.

• What are the blackout periods and insider trading windows at my company?
• Have I taken the necessary steps to ensure SEC compliance when selling stock?

A centralized advisory team can help you stay compliant and mitigate reputational and financial risks associated with inadvertent violations.

Equity Concentration Risk: Diversify with Intent

A concentrated equity position arises when a significant portion of your net worth is tied to a single stock — often your employer’s. Equity awards, inheritance, or long-term holdings can amplify this risk. Questions to consider asking include:

• What percentage of my wealth is concentrated in company stock, and how does that compare to best practices?
• Are there hedging strategies — such as collars, prepaid forwards, or exchange funds — that allow downside protection without triggering immediate tax consequences?

A family office can help implement, monitor, and periodically reassess these strategies to ensure alignment with your long-term investment goals and risk tolerance.

Long-Term Wealth Planning: From Equity to Enduring Legacy

Equity compensation can form the foundation of multigenerational wealth. To fully realize its potential, it must be intentionally integrated into retirement, philanthropic, and estate plans. Consider the following:

• How does this equity position fit into my broader legacy planning?
• Would establishing a grantor retained annuity trust (GRAT) facilitate the transfer of appreciated equity with minimal tax consequences?

Transforming equity into a lasting legacy requires more than investment acumen — it demands a coordinated family office approach that harmonizes legal, tax, and estate strategies across generations.

Professional Guidance: The Value of an Integrated Team

Equity compensation can be complex, but you do not need to navigate it alone. The right advisors can turn complexity into clarity. Ask yourself:

• Do I have a financial advisor who specializes in equity compensation and executive wealth planning?
• Should I consult a tax attorney for more advanced strategies?
• Would I benefit from assembling a family office or joining a multifamily office structure?