When founders think about the future, their focus is often on securing the next round of funding, launching a new product, or achieving a key growth milestone. Estate planning, understandably, may not be a priority. However, as a startup grows, a founder’s personal estate can become increasingly complex.
Setting up a thoughtful estate plan early can help protect family members, preserve business value and the momentum of growth, and reduce uncertainty in the event of unexpected incapacity or death.
Stage 1: Pre-seed
At the pre-seed stage, a startup may have limited financial value, but founders are often creating assets that could become extremely valuable in the future. At this stage, it is essential to establish a foundation for estate planning through a will and powers of attorney, while identifying and documenting key assets.
From an estate planning perspective, the distinction between personally owned and corporately owned assets matters. Given the fast pace of growth, certain assets may be owned personally by founders, while others are owned by the corporation. Founders frequently develop intellectual property before a corporation is formed or before intellectual property assignments are completed. Personally owned intellectual property may pass under a will, whereas intellectual property owned by the corporation forms part of the value of the founder’s shares rather than their personal estate.
Estate planning tip: Building a foundation
Ensure that assets are identified, ownership is clear, and foundational estate planning documents are in place.
Stage 2: Seed
As outside investors get involved, it is important to consider a founder’s estate plan in the context of the startup’s governance structure, including financing and shareholder agreements.
Shareholder agreements may contain provisions that govern what happens on death or incapacity, which can affect whether an executor or beneficiary can deal with shares in the corporation.
Planning may also involve a review of stock options and other equity compensation arrangements for an understanding of how they would be dealt with in the event of incapacity or death. Life insurance products may also be an effective tool for planning and risk-management.
Estate planning tip: Considering the transfer of assets and obligations
At the seed stage, the estate planning focus shifts toward understanding restrictions and obligations that may affect how those assets can ultimately be transferred to beneficiaries. A dual will structure may be considered to address privately held shares in anticipation of increasing value.
Stage 3: Early growth (Series A)
At this stage, founder equity often represents a substantial portion of personal wealth. As the value of privately held shares grows, founders should begin considering how to structure future growth and whether their succession planning remains appropriate.
Founders may consider seeking advice on longer-term succession strategies designed to manage future growth and wealth accumulation, such as an estate freeze.
As wealth increases, founders should also consider whether family members would be equipped to receive or manage business interests if the founder were no longer involved.
Incapacity planning also becomes increasingly important. A founder’s death is not the only risk to consider. The consequences of incapacity during a financing process, acquisition negotiation, or critical growth period can be equally disruptive.
Estate planning tip: Protecting emerging wealth
Check in on whether personal wealth has changed significantly and consider seeking advice to determine whether more sophisticated structures should be implemented for succession planning and the transfer of assets.
Stage 4: Expansion and scaling (Series B, C and beyond)
With significant expansion and growth, a founder will likely have accumulated substantial wealth by this stage, which may be concentrated in privately held business interests.
The ongoing planning implemented during earlier stages provides the foundation for more sophisticated strategies. Estate freezes, dual-will planning, insurance strategies, and succession planning are often most effective when built upon a well-organized ownership structure and regularly updated estate plan.
Estate planning tip: Personal objectives and legacy
At this stage of growth, a founder’s estate planning is essential to reduce administrative complexity and to capture corporate, tax, family, and philanthropic goals.
Looking ahead
Estate planning is a key foundational element to reduce the risk of disrupting critical stages of growth of a startup, and for founders to protect their families and personal assets. It is not a one-time exercise, as each stage of raising introduces new assets, commitments, risks, and planning opportunities. By reviewing their estate plans at each stage of growth, founders can help protect both their families and the businesses they have worked so hard to build.
If you are a founder with questions or looking for advice on your estate plan, Miller Thomson’s Private Client Services lawyers can create a plan that aligns with your goals.
Planning checklist for founders
Pre-seed
- Prepare a will and powers of attorney
- Identify key assets
- Confirm asset ownership
Seed
- Review agreements and obligations
- Consider equity compensation
- Assess need for life insurance
Series A
- Review changes in assets
- Consider dual wills
- Seek advice on estate freeze for future growth
Series B, C and beyond
- Review corporate structure
- Consider personal and philanthropic goals
- Develop long-term wealth transfer strategy
