|Is now the right time to exercise my stock options?
Joanne, 50, is a senior vice president with a global telecommunications company where she has accumulated stock options of 100,000 shares and 50,000 shares of restricted stock in her company. She and her husband want to buy a second home, and are thinking about exercising a significant portion of her options to finance the down payment.
However, they are concerned about squandering the opportunity that those options represent, and about the tax liability that they will incur. They decided it was wise to talk with an advisor at PNC Wealth Management.
- The first thing Joanne's advisor did was thoroughly review her financial goals with her attorney and tax advisor to determine how the options fit into the Conners' overall plan.
- Next, PNC investigated the option grants themselves, including the strike price, the maturity, and whether or not the shares underlying the option grants would be restricted.
- PNC also assessed the financial impact of exercising her options.
After conducting a cash flow analysis, PNC recommended that the Conners consider a cashless exercise of stock options. Essentially, the Conners would borrow the money needed for the option exercise, rather than pay cash. They agreed, and used the proceeds from the cashless exercise to buy the home of their dreams.
Considering an Outright Sale of Your Stock? There are many ways to achieve liquidity from the equity you own in your company. Remember, an outright sale of a large block of company stock usually is impractical for most senior executives given the legal hurdles, tax implications and potential negative publicity for your company. There often are wiser and more strategic ways to gain liquidity while managing your risk and tax liabilities, including securities-based loans and charitable remainder trusts. If your securities are marketable, PNC Wealth Management can help develop a systematic selling strategy?liquidating shares periodically in an orderly manner - to help you maximize the proceeds of your sale and potentially avoid negative publicity for your company. Your PNC Wealth Management team can advise you which strategy may be appropriate for your unique situation.1
1. PNC Wealth Management does not provide legal, tax or accounting advice.