Startups

Estate planning basics for founders and entrepreneurs

Comment

an hourglass filled with sand measures the passage of time
Image Credits: Matthias Kulka (opens in a new window) / Getty Images

Renee Fry

Contributor

Renee Fry is the founder and CEO of Gentreo, an online estate planning company.

When you’re wearing multiple hats while managing your startup’s operations, there’s hardly any time to stop and think about what would happen if things were to go catastrophically wrong. You probably don’t consider the consequences if you were to die suddenly, leaving the venture you spent so much blood, sweat and tears building without a leader.

It’s even less often that we think about what happens after we pass away — when state courts hand the business to an unprepared family member or tie up business assets for months or years until your estate is settled.

Unfortunately, without an estate plan in place, these scenarios are entirely likely. I cannot stress enough how important it is for startup founders and business owners to have a plan. It doesn’t just protect your assets — it keeps your legacy intact.

We repeatedly hear about the very real consequences when business owners die without an estate plan that dictates their wishes legally. Just a year ago, the former CEO of Zappos, Tony Hsieh, died in a fire at 46. Prior to this, he had retired with an estimated net worth of $840 million, but his family has since declared that he died intestate.

Now they are desperately trying to file for access to the former CEO’s accounts and assets but to no avail. And what makes the case even more tragic is that Hsieh had a plethora of charitable interests and would have undoubtedly wanted to donate some of his wealth upon his passing.

A recent survey from LegalZoom.com found that 62% of Americans don’t have an estate plan in place. However, 32% of young people aged 18 to 34 say they have sorted out an estate scheme due to the pandemic. What’s more, 21% of that group said they created a plan specifically because they or someone they knew had COVID-19.

We all want to build businesses that are timeless and are going to last for decades, so you should make sure your business is in good hands no matter what happens. With COVID-19 bringing estate planning into sharper focus, let’s look at what you can do to ensure stress-free planning.

Get your documents in order

For starters, any startup owner needs to look into the documents required for an estate plan to be put in place.

Every adult in America should have a medical and financial power of attorney and a will. The medical and financial power of attorney are documents that empower someone you trust to make decisions for you during your lifetime if you become incapable of leading your business. If none of that is organized and you become incapacitated or die, the state comes in and makes decisions for you, regardless of what you may have chosen.

Aside from the documents you need to have in place for an estate plan (the power of attorney, health proxy and a will), it is also worth considering creating a living trust with all your assets and a “pour-over will” associated with it. This means that in the event of an untimely death, the distribution of your assets to beneficiaries is a much smoother process because the courts don’t need to step in to grant executor authority.

In the case of a sole proprietorship, were you to pass away, the business could simply dissolve, depending on your state’s intestacy laws. Or, the courts may award the sole proprietorship to your spouse or other surviving family members, which presents additional issues.

For example, suppose a marriage was on the rocks to the point where one party was filing for divorce but also owned a very successful business and suddenly died. In that case, the spouse could inherit the company, which would certainly not be in the deceased’s interests.

Estate planning services can walk you through the different elements needed for each document. For example, this could refer to distributing assets to your beneficiaries or assigning a guardian for your children.

Once that is done, the documents will need to be notarized, and in the case of a will or power of attorney, you will need a witness to be present. The final step is uploading them to a digital portal — some companies can even offer 24/7 access.

A constantly evolving situation

An estate plan needs adjusting throughout your life, particularly if you own a burgeoning startup that might become a major player in your sector later down the line. Ideally, you would update an estate plan annually, around the time when tax returns are due, but the situation can be much more fluid depending on the state of your business.

It’s possible that your business assets rapidly gain value, or you decide that you want to take a different approach toward your succession planning (anyone who has seen the TV drama “Succession” knows just how complex this can be).

You must decide whom you trust to take over your company if something happens to you. It is not just about having an estate plan that expresses your wishes — it’s almost equally important to communicate it with a written succession plan.

HBR estimates that company valuations and investor returns would be 20% to 25% higher with better succession planning, which must be coordinated with your will to avoid the possibility of conflicting rights to any of your assets. Ideally, you want to give this person as much notice as possible, so they are prepared for your death and don’t have to spend unnecessary time and money hiring a lawyer or filling out paperwork.

It is also worth noting that when it comes to dividing the value of your assets, valuations can change, which is why updating your estate plan is crucial.

For example, you might decide to donate a percentage of your total estate to the church, but if the value of your estate increases over a few years, this sum could end up being far greater than you initially thought. Similarly, if you assign a significant cash value to a particular party, and your estate loses value, they could be receiving much more than you would be comfortable giving.

Although we have discussed estate planning from the status of high-net-worth individuals, and some startups may not consider themselves at this stage just yet, it has to be a consideration for the future. As of January 2022, up to $3.5 million in net worth would not be taxed federally after you die.

However, any amount over that would be taxed at the federal estate tax rate up to 40%. Therefore, if a successful founder were to pass away without an estate plan in place, they could leave both legal difficulties for their family and their estate could lose a considerable amount to federal tax.

This may seem a bit bleak, but having an estate plan will put your mind at ease.

I don’t want to fear-monger; instead, I want to highlight the costly and damaging impact when something happens and you don’t have an estate plan in place. Startup owners can be forgiven for not considering estate planning previously, as leaders are often working nonstop to get their business off the ground, but not taking the time to get on top of it could cause many problems farther down the line.

Taking these steps and being wary of the cautions outlined above will save undue stress for you and your family should the worst ever happen.

More TechCrunch

To give AI-focused women academics and others their well-deserved — and overdue — time in the spotlight, TechCrunch has been publishing a series of interviews focused on remarkable women who’ve contributed to…

Women in AI: Rep. Dar’shun Kendrick wants to pass more AI legislation

We took the pulse of emerging fund managers about what it’s been like for them during these post-ZERP, venture-capital-winter years.

A reckoning is coming for emerging venture funds, and that, VCs say, is a good thing

It’s been a busy weekend for union organizing efforts at U.S. Apple stores, with the union at one store voting to authorize a strike, while workers at another store voted…

Workers at a Maryland Apple store authorize strike

Alora Baby is not just aiming to manufacture baby cribs in an environmentally friendly way but is attempting to overhaul the whole lifecycle of a product

Alora Baby aims to push baby gear away from the ‘landfill economy’

Bumble founder and executive chair Whitney Wolfe Herd raised eyebrows this week with her comments about how AI might change the dating experience. During an onstage interview, Bloomberg’s Emily Chang…

Go on, let bots date other bots

Welcome to Week in Review: TechCrunch’s newsletter recapping the week’s biggest news. This week Apple unveiled new iPad models at its Let Loose event, including a new 13-inch display for…

Why Apple’s ‘Crush’ ad is so misguided

The U.K. Safety Institute, the U.K.’s recently established AI safety body, has released a toolset designed to “strengthen AI safety” by making it easier for industry, research organizations and academia…

U.K. agency releases tools to test AI model safety

AI startup Runway’s second annual AI Film Festival showcased movies that incorporated AI tech in some fashion, from backgrounds to animations.

At the AI Film Festival, humanity triumphed over tech

Rachel Coldicutt is the founder of Careful Industries, which researches the social impact technology has on society.

Women in AI: Rachel Coldicutt researches how technology impacts society

SAP Chief Sustainability Officer Sophia Mendelsohn wants to incentivize companies to be green because it’s profitable, not just because it’s right.

SAP’s chief sustainability officer isn’t interested in getting your company to do the right thing

Here’s what one insider said happened in the days leading up to the layoffs.

Tesla’s profitable Supercharger network is in limbo after Musk axed the entire team

StrictlyVC events deliver exclusive insider content from the Silicon Valley & Global VC scene while creating meaningful connections over cocktails and canapés with leading investors, entrepreneurs and executives. And TechCrunch…

Meesho, a leading e-commerce startup in India, has secured $275 million in a new funding round.

Meesho, an Indian social commerce platform with 150M transacting users, raises $275M

Some Indian government websites have allowed scammers to plant advertisements capable of redirecting visitors to online betting platforms. TechCrunch discovered around four dozen “gov.in” website links associated with Indian states,…

Scammers found planting online betting ads on Indian government websites

Around 550 employees across autonomous vehicle company Motional have been laid off, according to information taken from WARN notice filings and sources at the company.  Earlier this week, TechCrunch reported…

Motional cut about 550 employees, around 40%, in recent restructuring, sources say

The company is describing the event as “a chance to demo some ChatGPT and GPT-4 updates.”

OpenAI’s ChatGPT announcement: What we know so far

The deck included some redacted numbers, but there was still enough data to get a good picture.

Pitch Deck Teardown: Cloudsmith’s $15M Series A deck

Unlike ChatGPT, Claude did not become a new App Store hit.

Anthropic’s Claude sees tepid reception on iOS compared with ChatGPT’s debut

Welcome to Startups Weekly — Haje‘s weekly recap of everything you can’t miss from the world of startups. Sign up here to get it in your inbox every Friday. Look,…

Startups Weekly: Trouble in EV land and Peloton is circling the drain

Scarcely five months after its founding, hard tech startup Layup Parts has landed a $9 million round of financing led by Founders Fund to transform composites manufacturing. Lux Capital and Haystack…

Founders Fund leads financing of composites startup Layup Parts

AI startup Anthropic is changing its policies to allow minors to use its generative AI systems — in certain circumstances, at least.  Announced in a post on the company’s official…

Anthropic now lets kids use its AI tech — within limits

Zeekr’s market hype is noteworthy and may indicate that investors see value in the high-quality, low-price offerings of Chinese automakers.

The buzziest EV IPO of the year is a Chinese automaker

Venture capital has been hit hard by souring macroeconomic conditions over the past few years and it’s not yet clear how the market downturn affected VC fund performance. But recent…

VC fund performance is down sharply — but it may have already hit its lowest point

The person who claims to have 49 million Dell customer records told TechCrunch that he brute-forced an online company portal and scraped customer data, including physical addresses, directly from Dell’s…

Threat actor says he scraped 49M Dell customer addresses before the company found out

The social network has announced an updated version of its app that lets you offer feedback about its algorithmic feed so you can better customize it.

Bluesky now lets you personalize main Discover feed using new controls

Microsoft will launch its own mobile game store in July, the company announced at the Bloomberg Technology Summit on Thursday. Xbox president Sarah Bond shared that the company plans to…

Microsoft is launching its mobile game store in July

Smart ring maker Oura is launching two new features focused on heart health, the company announced on Friday. The first claims to help users get an idea of their cardiovascular…

Oura launches two new heart health features

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI considers allowing AI porn

Garena is quietly developing new India-themed games even though Free Fire, its biggest title, has still not made a comeback to the country.

Garena is quietly making India-themed games even as Free Fire’s relaunch remains doubtful

The U.S.’ NHTSA has opened a fourth investigation into the Fisker Ocean SUV, spurred by multiple claims of “inadvertent Automatic Emergency Braking.”

Fisker Ocean faces fourth federal safety probe