For an executive who has built wealth by holding concentrated stock, wealth preservation involves building a diversified base to help support fixed costs and core spending over time. The rest of the stock can then stay in place as upside you chose to keep. However, taxes, trading rules, and timing make preserving wealth a multi-year process, not a single trade.
What Does Wealth Preservation Mean for an Executive With Concentrated Stock?
For an executive with concentrated stock, wealth preservation means turning part of the stock’s growth into a diversified base that can fund your life on your terms. That base supports your lifestyle, your family’s goals, and the freedom to choose how your time is spent.
Building wealth and keeping it call for different strategies. Betting on yourself and your company is often how executives build significant wealth, and holding employer stock was frequently the right call. Once that wealth exists, however, diversification becomes the tool that keeps it working for you.
The two stages work differently in practice. Concentration can build wealth quickly because one company’s growth drives the whole position. However, no one can reliably forecast a single share price over any particular stretch of years. A diversified base does not need that forecast, so it can fund near-term goals while the remaining stock stays in place for upside.
Wealth preservation generally starts when the stock has done its job. That is, the position could already fund the life you want. For some executives, that point comes a decade or more before retirement.
Wealth preservation also does not mean removing all risk. Instead, it means keeping the risks you choose. For example, you might keep a large stock position for upside while a separate diversified base is intended to help cover core spending needs.
How Much Wealth Should Sit Outside Your Employer Stock?
One practical approach is a dollar floor: a diversified asset base intended to help support fixed costs and core spending over time without relying solely on the value of employer stock.
A percentage rule works differently. For instance, a 10% cap on any single stock tracks exposure. However, it does not tell you whether the money funds your lifestyle, and it shifts every time the price moves. By contrast, a dollar floor stays tied to what the money is for.
To build the floor, start with a list of core costs:
- Housing, including mortgage, property tax, and insurance
- Education and support for family members
- Insurance premiums and recurring fees
- Core lifestyle spending, such as travel and the activities that make the wealth worth having
Here is a hypothetical example. Say core spending is $300,000 a year. At a 3.5% to 4% withdrawal rate, that points to a diversified base of roughly $7.5 million to $8.6 million. Any stock above that floor can then stay concentrated by choice rather than by default.
Inside the floor, many plans match near-term spending with steadier assets. Meanwhile, long-term goals can go into growth assets. For more depth, see Spectrum’s post on how much you need outside of your company stock. Our post on how much of your net worth should be in employer stock covers the percentage view. Finally, our guide on how to build a portfolio around concentrated stock shows how the base can work around the shares you keep.
How Do Taxes Affect Preserving Wealth From Concentrated Stock?
Taxes are often the biggest cost of preserving wealth from concentrated stock, because low-basis shares carry large gains.
For a California resident in the top bracket, a long-term gain faces three layers of tax. First, the top federal capital gains rate is 20%. Second, the 3.8% Net Investment Income Tax (NIIT) applies above $200,000 of modified AGI for single filers and $250,000 for joint filers. Those limits do not rise with inflation. Third, California taxes gains as ordinary income at up to 13.3%. Together, that adds up to 37.1%.
Short-term gains face even higher rates. So does income from Restricted Stock Units (RSUs) when they vest. In both cases, the rate is 37% federal plus 13.3% California, or roughly 50%.
Here is a hypothetical example. Suppose you sell $1 million of long-term stock with a $100,000 basis. That creates a $900,000 gain. At 37.1%, the tax comes to about $333,900.
Spreading Concentrated Stock Sales Across Tax Years
Spreading sales across tax years can keep more of each gain out of the top brackets. For example, California’s 13.3% rate includes a 1% Mental Health Services Tax on income above $1 million. So if you keep a year’s income below that line, the state rate on those dollars drops to 12.3%. In addition, you can pick specific share lots and sell the higher-basis shares first.
Charitable Gifts of Low-Basis Shares
Giving appreciated shares you have held more than one year may allow you to avoid recognizing some or all of the embedded capital gain, depending on applicable tax rules and your circumstances. When you donate to a public charity or a Donor-Advised Fund (DAF), you can generally deduct the full market value, up to 30% of adjusted gross income (AGI). Also, depending on applicable tax rules and the circumstances of the gift, capital gains tax may not be recognized on the donated shares. Starting in 2026, though, the One Big Beautiful Bill Act adds a floor of 0.5% of AGI on these deductions. It also caps their value at 35% for the top bracket. Our post on charitable planning with employer stock explains the details.
Step-Up in Basis Under IRC Section 1014
Under Internal Revenue Code Section 1014, heirs generally receive a new cost basis equal to market value at death. As a result, the built-in gain disappears. That is one reason some executives keep their lowest-basis shares and sell higher-basis lots instead. For married couples in California, Section 1014(b)(6) can also step up both halves of community property when the first spouse dies.
How Do Trading Restrictions Shape a Wealth Preservation Plan?
Trading restrictions set the pace of a wealth preservation plan. Insiders can generally sell only during open trading windows or through a 10b5-1 Trading Plan. As a result, executives often sell a large position over many windows.
A 10b5-1 Trading Plan lets you sell on a set schedule, even during blackout periods. However, you have to adopt it during an open window, while you have no material nonpublic information. Under the SEC’s December 2022 amendments, directors and officers must then wait before the first trade. The wait is the later of 90 days or two business days after the company files its next Form 10-Q or 10-K. In any case, it cannot exceed 120 days. Other employees wait 30 days.
Senior insiders also face two more rules. Rule 144 limits what an affiliate can sell in any three-month period. The cap is the greater of 1% of outstanding shares or the average weekly trading volume over the prior four weeks. Meanwhile, Section 16 requires directors and officers to file a Form 4 within two business days of a trade.
Stock ownership guidelines add one more layer. Many companies require officers to hold shares worth a multiple of base salary. Shares above the guideline may be available for a wealth preservation plan, subject to the company’s ownership policy, applicable trading restrictions, and the executive’s circumstances. For tips on using each window, see our post on what corporate executives should do before a blackout period.
What Tools Preserve Wealth Without Selling Concentrated Stock?
Four tools can reduce single-stock risk or create cash without an outright sale. Each one has its own costs and rules, and your company’s policy may limit some of them.
- Exchange Fund: you swap shares for a stake in a diversified pool, with no sale. You generally hold for at least 7 years, and the fund keeps at least 20% of its assets in non-stock property such as real estate.
- Option Collar: you buy a put and sell a call, which sets a floor and a ceiling on the share price for a period of time.
- Borrowing against vested shares: a securities-based line of credit provides cash without a taxable sale. However, many insider trading policies limit pledging.
- Charitable Remainder Unitrust (CRUT): the trust sells your low-basis shares with no immediate capital gains tax. Then it pays you 5% to 50% of its value each year.
What Role Does Asset Protection Play in Wealth Preservation?
Asset protection keeps your plan on track when life brings the unexpected. It relies on insurance and ownership structures that match the size of your balance sheet.
Umbrella liability insurance usually comes in $1 million increments. So a policy you bought years ago may no longer fit your net worth. Similarly, group long-term disability plans often replace about 60% of base salary, up to a monthly cap. Many exclude bonus and equity pay. As a result, an executive paid mostly in RSUs may have only a small share of total pay covered.
Trusts can also add structure around who controls and receives assets. In addition, insurance and estate documents drift out of date unless you review them after life events. A promotion, a move, a marriage, or a birth are all good triggers. For more, see our posts on whether to place concentrated stock in a trust and estate planning with concentrated stock.
How Does Estate Planning Fit Into Preserving Wealth From Concentrated Stock?
Estate planning decides who receives your concentrated stock, when, and at what tax cost. It works alongside the diversified base, not after it.
Start with beneficiary designations, because they can affect how certain assets pass at death and may supersede provisions in a will. They apply to retirement accounts, life insurance, and transfer-on-death accounts. So an outdated form can send assets somewhere your plan never intended.
Next, look at the 2026 limits. The federal estate and gift tax exemption is $15 million per person, or $30 million per married couple, under the One Big Beautiful Bill Act. The annual gift exclusion is $19,000 per recipient. California has no state estate or gift tax.
Lifetime gifts do come with a tradeoff. Gifted shares keep your original basis under IRC Section 1015. In contrast, shares held until death generally get a step-up under Section 1014. That is why lifetime gifts often use higher-basis shares or assets you expect to grow. Our post on what the new $15 million estate tax exemption means if you hold concentrated stock covers the planning windows.
What Should a Wealth Preservation Checklist Include?
A wealth preservation checklist can include six items, and you can review each one at least once a year:
- List every equity grant, vest date, and cost basis lot
- Find your company’s ownership guideline and the shares you hold above it
- Set a dollar target for your diversified base
- Check beneficiary designations on every account and equity plan
- Confirm umbrella and disability coverage against your current net worth and pay
- Schedule an annual review during your company’s open trading window
Want help preserving wealth built through concentrated stock? Contact Spectrum Asset Management to talk it through.
By Garrett Peterson, Wealth Advisor | Spectrum Asset Management | Reviewed September 2026
Disclaimer: This material is for informational and educational purposes only and should not be construed as investment, legal, or tax advice. All investing involves risk, including the potential loss of principal. Consult your financial, legal, and tax professionals regarding your personal circumstances. Certain strategies referenced, including options strategies, exchange funds, securities-based lending, and charitable remainder trusts, involve additional risks, costs, complexity, and eligibility requirements, and may not be appropriate for all investors. Options are not suitable for all investors. Hypothetical examples are for illustration only and do not represent any specific client or investment result. Nothing herein constitutes an offer to enter into an advisory relationship. Spectrum Asset Management, Inc. (SAM) is an SEC-registered investment adviser headquartered in Newport Beach, California. SAM is not affiliated with any other firm using a similar name.
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