What Happens to Unvested Shares in a Prenup and Estate Plan

How Does Equity Compensation Fit Into a Prenup for Tech Couples

A prenup lets couples outline in advance how vested and unvested RSUs, stock options, and future grants are characterized, giving both partners clarity about equity wealth before the wedding. This matters because equity compensation can grow from a modest paper value to a life-changing sum over just a few vesting cycles, and waiting until later to sort out ownership expectations invites confusion.

As Michael C. Cotugno, Esq., Managing Partner, Neptune Legal, puts it: "A premarital agreement doesn't have to be a wedge between partners or a necessary evil that protects assets at the expense of trust and intimacy."

That framing is especially relevant for couples in tech. When one partner holds $200,000 in unvested RSUs at the time of marriage and those shares grow to $1.2 million over four years of vesting, both partners benefit from knowing how that trajectory is addressed. A well-drafted prenup might specify that pre-marriage grants remain separate property while post-marriage grants or vesting periods are treated as shared. It might also address how future employer equity plans are handled. The point isn't to wall off wealth. It's to create alignment so both partners understand their financial picture together.

The challenge is that generic templates rarely account for equity nuance. DIY prenup services typically cost $0 to $700, but they often use boilerplate asset language that doesn't distinguish between vested shares, unvested RSUs, ISOs, and NSOs. A lawyer-led online prenup that involves experienced attorneys typically runs $4,000 to $10,000 or more, but it can include equity-specific clauses that mirror your actual grant terms. Independent counsel for each partner is highly recommended for an enforceable prenup.

Neptune pairs couples with attorneys who have 20+ years of experience alongside CFPs and CPAs, so prenup language is drafted with full visibility into real grant agreements, vesting schedules, and tax consequences.

What Happens to Unvested RSUs and Stock Options at Death

Unvested awards typically follow one of three plan-defined outcomes at death: full acceleration (all unvested shares vest immediately), partial or pro-rata acceleration (a portion vests based on service completed), or forfeiture (all unvested awards are canceled). The outcome depends entirely on your company's equity incentive plan and individual grant agreement.

First, understand the vested versus unvested distinction. Vested equity, whether that's stock options you can exercise, RSUs that have already converted to shares, or performance shares that met their criteria, is property you already own. It generally passes to your estate or designated beneficiary just like any other asset. Unvested equity is a promise of future ownership, contingent on continued employment. Death terminates employment, which triggers whatever the plan says happens next.

Three documents control the outcome:

1. The grant agreement for each specific award, detailing vesting schedule, exercise price, and termination provisions.
2. The equity incentive plan, the master document governing all company equity awards, containing definitions for "Termination of Service" and death exceptions.
3. Corporate bylaws, which in some cases contain overarching rules affecting stock issuance and transfers.

The post-death exercise window for vested options is typically extended to about 12 months, compared to the 90-day window that usually applies when someone voluntarily leaves a company. This longer window gives estates and beneficiaries time to establish legal authority (letters testamentary, death certificates) and make informed exercise decisions. But the maximum option term in the original grant still applies. If your options were set to expire in 14 months regardless, the estate doesn't get a full 12 months.

Because forfeiture is a real possibility, couples should review plan documents early, ideally before or during the prenup process, so both partners understand the actual economic exposure.

How Are ISOs, NSOs, and RSUs Taxed When Inherited

Each award type carries distinct tax rules at death. ISOs retain favorable tax treatment only for a limited post-death window, NSOs and RSUs generate ordinary income upon exercise or delivery, and inherited shares may receive a step-up in basis on amounts already recognized as income, while the income-in-respect-of-a-decedent (IRD) doctrine can pull in the opposite direction.

Incentive Stock Options (ISOs)

Under IRC §422(c)(7), an ISO may be exercised by the estate or beneficiary for up to 12 months after death without losing its ISO status. The plan document may specify a shorter window. Exercising an ISO within 90 days of death does not trigger the alternative minimum tax (AMT) preference that would apply during life. If the estate misses the plan's post-death exercise window, the ISOs either become non-qualified stock options or lapse entirely, depending on plan terms.

Non-Qualified Stock Options (NSOs)

NSOs offer less favorable tax treatment but more flexibility. When an estate or beneficiary exercises inherited NSOs, the spread between the exercise price and the fair market value at exercise is taxed as ordinary income. The IRS treats the income as reportable by whoever exercises the option. NSOs can sometimes be transferred to family members or certain trusts during the holder's lifetime, subject to plan restrictions, though such transfers are treated as taxable gifts based on the option's fair market value at the time of the gift.

Restricted Stock Units (RSUs)

When unvested RSUs accelerate at death, the shares are delivered to the estate and taxed as ordinary income in the year of delivery under IRC §83. That income tax liability becomes an estate obligation that must be paid before any distribution to beneficiaries. For a large RSU grant worth $500,000, the federal and state income tax on acceleration could easily exceed $200,000, depending on bracket and state.

Step-Up in Basis vs. IRD

Inherited property generally receives a step-up in basis under IRC §1014, meaning the heir's cost basis resets to fair market value at the date of death. This is enormously valuable for appreciated stock. However, the IRD doctrine applies to income that the decedent earned but hadn't yet received, like the spread on unexercised stock options. IRD items do not get a step-up in basis, meaning the heir pays income tax on that spread just as the decedent would have.

Can You Put Unvested Equity Into a Trust

Unvested RSUs and unvested stock options generally cannot be transferred into a trust. Plan documents almost universally prohibit transferring unvested awards, meaning they stay with the original grant holder until vesting occurs. Vested shares and certain NSOs may be transferable, but only if the plan's transfer restrictions and permitted-transferee rules allow it.

Transfer Restrictions and Permitted Transferees

Most equity incentive plans include explicit language restricting transfers of unvested awards. Even for vested awards, many plans limit transfers to immediate family members or specific types of trusts (often called "permitted transferees"). ISOs are subject to a federal transfer ban under IRC §422, meaning they cannot be transferred during the holder's lifetime at all, with the sole exception of transfers at death.

Startup equity adds another layer. Many early-stage companies include a right of first refusal in their shareholder agreements, giving the company the right to buy shares back at current fair market value before any outside transfer. These clauses can survive death, so the estate may need to offer shares to the company before passing them to a beneficiary.

Trust Vehicles for Vested Equity

Once shares have vested and are fully owned, several trust structures become available:

• [Revocable living trust](https://meetneptune.com/blog/revocable-living-trust-cost): Holds vested shares, avoids probate, and ensures continuity of management if you become incapacitated. Does not provide estate tax benefits.
• Spousal Lifetime Access Trust (SLAT): An irrevocable trust that can reduce the taxable estate while still allowing the non-grantor spouse access to the assets. Useful for couples with combined estates approaching or exceeding the 2024 federal estate tax exemption of $13.61 million per individual.
• Intentionally Defective Grantor Trust (IDGT): The grantor pays income tax on trust earnings, effectively making tax-free gifts to the trust beneficiaries while removing assets from the taxable estate.

Valuation Challenges for Private-Company Equity

For private startup equity, the IRS requires every estate to value all property at fair market value as of the date of death. Public company shares are straightforward (use the closing price), but private equity valuation is contested territory. Common approaches include the most recent 409A appraisal, option pricing method (OPM) backsolve from the latest funding round, and probability-weighted expected return (PWERM) models. Each method produces a different number, and the IRS can and does challenge values it considers too low. For any meaningful position, an independent business valuation is typically necessary.

Neptune's coordinated team of attorneys, CFPs, and CPAs works together to align trust structures with your plan's actual transfer rules, ensuring you don't draft documents that conflict with what your employer's equity plan permits.

A Framework for Coordinating Your Prenup, Estate Plan, and Equity Awards

Couples should read their actual plan documents, name beneficiaries where the plan allows, model the tax exposure from potential acceleration, and make sure their prenup and estate documents reference real grant terms rather than generic asset language. Here's a step-by-step framework.

Step 1: Inventory All Equity Awards

Gather every grant agreement, your employer's equity incentive plan summary, and any related documents (offer letters, amendment notices, 409A valuations for private companies). List each award by type (ISO, NSO, RSU, ESPP), grant date, vesting schedule, exercise price (if applicable), and current value.

Step 2: Review Plan Documents for Death Provisions

Look specifically for sections titled "Termination of Service," "Death," or "Change in Control." Confirm whether your plan provides full acceleration, partial acceleration, or forfeiture at death. Note any post-death exercise windows and whether they differ from voluntary termination windows.

Step 3: Confirm Post-Death Exercise Windows and Deadlines

For stock options, document the exact window the estate has to exercise after death. If the plan says 12 months, mark that. If it's shorter, flag it. Make sure your executor knows these deadlines exist and where to find the documents.

Step 4: Model Tax Exposure From Acceleration

Work with a CPA to estimate the income tax bill that would hit the estate if all unvested RSUs and options accelerated at death. For someone with $800,000 in unvested RSUs, the federal and state income tax on acceleration could be $300,000 or more. Does the estate have enough liquid assets (cash, life insurance proceeds) to cover that without forcing a fire sale of other holdings? If not, consider life insurance or other liquidity planning.

Step 5: Align Prenup and Estate Documents With Grant Terms

Your prenup should reference equity compensation in specific terms, distinguishing between pre-marriage and post-marriage grants, vested and unvested awards, and different award types. Your estate plan (will, trusts, beneficiary designations) should be consistent with the prenup and with what the equity plan actually permits.

Step 6: Inform Your Executor

This step is often overlooked. Your executor needs to know that equity awards exist, where the documents are stored, who the stock plan administrator is, and what deadlines apply. A missed 12-month exercise window can mean hundreds of thousands of dollars in value expiring.

Neptune manages the full end-to-end process for couples navigating prenups, estate planning, and tax decisions. By pairing you with experienced attorneys (20+ years), CFPs, and CPAs, Neptune ensures your prenup language, trust structures, beneficiary designations, and tax plans all work together, reflecting what your equity plan actually says rather than what a template assumes.