Nonqualified stock options and incentive stock options (ISOs) can be used to shift income to children at capital gain rates. By making lifetime gifts of nonqualified stock options before the market value has appreciated, an employee may remove a potential high-growth asset from an estate, at a low gift tax value. By permitting an employee to transfer nonqualified stock options to children (or grandchildren), a company may confer a substantial benefit without additional compensation expense and the employee will have an appreciated asset to gift to his children. The children will sell the stock to pay for college and will be taxed at capital gain rates.