Legal Question in Wills and Trusts in Virginia

Re: family business

Obviously, you can give your sons anything that you own, so I suspect that there is more to your question than your posting makes clear.

Either method would work. Of course a stock option would require them to actually put up money to buy the stock at a (presumably favorable) price. So a stock option can be worth money if the option price is significantly below the actual value of the stock. But your sons would have to put up more money to actually buy the stock.

If you give them stock as a bonus, added to their salary, this would not require them to put up any money. Also, stock options usually have lots of restrictions on them, including expiration dates, aimed at encouraging the holder to work hard to make the business grow, so that their options will become more valuable. For example, many options cannot be exercised right away, to encourage the holder to continue working hard for the company so that the options will be worth something in 1 or 2 years (whatever).

However, you are consdering giving them your personally-held shares in the company, as an individual, and it is NOT the company that would be giving the shares. This could be tricky.

If you give them some of your personal stock, this would be a gift of your own personal wealth, not the company paying compensation for work. That could very much affect your estate tax situation. We don't know enough here to know if you care (if you will have to pay any estate tax under the threshholds).

On the other hand, the company could issue additional shares of stock and distribute those new shares as part of your son's compensation / bonus package. This would "water down" the existing shares of stock, but you would still hold the same shares you hold now.

There can be NO easy answer about estate taxes, without a careful review. But if you give your personal shares (rather than the company rewarding them with shares) this is a gift that will be considered as part of your lifetime estate tax exclusion. Whether you give it during your life or at death, it must be accounted for. You either have to pay gift tax or reduce your estate tax exclusion, so that it ends up being the same either way.

I think what you really have in mind is reward for work, which means that the company should be issuing NEW shares of stock to them as a bonus, rather than you giving your personally-held shares as an individual.

Also, consider whether the company might buy back shares from you. Instead of paying out dividends of profit, for example, the company might buy some of your shares back as a way of giving you cash in a way that might receive better tax treatment for you (capital gain instead of income).