Richard Zack, the founder of Eternal Me, is an Internet and technology expert with 25 years of experience. He's been featured in several international media outlets including USA Today, ComputerWorld, TechCrunch, Journalism.co.uk, and more. Richard previously worked as the Global Vice President at Canonical, the makers of Ubuntu Linux. He’s founded multiple Internet and technology startups with successful exits, and has lectured at leading universities like Rensselaer Polytechnic Institute and Case Western Reserve University. Richard is a husband and father and is the trusted Digital Executor for people within the United States and Canada.
Estate planning is a critical aspect of financial management that often flies under the radar for many investors, especially those involved in the dynamic world of angel investing. While most individuals update their estate plans every three to five years, it begs the question: is this sufficient for angel investors?
Let's explore why angel and venture capital (VC) investors could be best served adopting a new strategy.
The Problem with Traditional Estate Planning Intervals
While traditional estate planning intervals — typically around every three to five years — were for many years the industry standard, they may no longer be adequate for angel investors.
Why?
Angel investors operate in a rapidly evolving environment where startup positions often change regularly. Angel investors are actively engaged in funding startups, injecting approximately $25 billion annually into over 70,000 new ventures. Unlike investors of more conventional asset classes, these investments are not usually bundled into a single brokerage account or two, which could be easily transferred to a beneficiary trust.
Think about it: one angel might invest in a dozen or more startups every year — each with its own unique terms, valuations, and potential. Startup shares might be managed on Pulley, Carta, AngelList, or offline. Are all these investments properly documented in the estate plan? When stock certificates are issued or reissued, is the estate plan also updated?
Consider this an opportunity to reevaluate whether these assets are indeed accounted for. After all, the disconnect between the frequency of investment activities and the often disparate nature of owning equity in many startups can lead to costly consequences.
The Importance of Regular Updates for Angel Investors
Failing to update estate plans accordingly can result in critical assets, such as startup investments, being inadvertently excluded or mishandled in the event of the investor's death. If a person invests in a startup but does not explicitly include those shares in their will or trust, several scenarios could unfold depending on the specific circumstances and legal frameworks involved:
For instance, startup shares that have vested but are not explicitly mentioned in a will might be considered part of the deceased person's estate. The executor of the estate (appointed by the court if there's no will) would typically be responsible for identifying and managing these assets. This could result in these assets not being distributed according to the deceased’s wishes.
Alternatively, if there are disputes over ownership or distribution, especially concerning unvested shares or shares not explicitly mentioned in a will, it could lead to legal challenges from heirs or other stakeholders. In some cases this can even cause disruptions in the operation or subsequent funding of the startup.
To avoid such complications, it's crucial for individuals with significant investments, especially in startups or other less liquid assets, to adopt a proactive approach to estate planning. This involves updating their wills or trusts regularly — at the time of each new investment, ideally — to reflect current holdings and intentions accurately.
Consulting with an estate planning expert can provide guidance tailored to individual circumstances and ensure that all assets, including startup investments, are properly accounted for and correctly distributed.
Dynamic Portfolios Need Dynamic Solutions
While working with an estate planning professional is highly recommended, active angel investors should have the option to update their wills themselves — often the easiest way to avoid the aforementioned consequences. Tools like Eternal Me and Protect myPlans offer a self-service approach to estate planning that can be an excellent companion to the guidance offered by an estate planner.
These platforms can help angel investors navigate the complexities of updating their estate plans to align with their investment activities and allow them to make updates themselves. By integrating these tools into their financial management practices when investments are made, investors can easily ensure their estate plans remain current and fulfill their purpose.
Whenever an angel investor invests in a startup, they can easily log into Eternal Me at their convenience and make the necessary changes. This ensures swift updates to reflect their latest investments and also avoids burdening their estate planner with minor, repetitive requests.
Modern Estate Planning for the Modern Angel Investor
Angel investors simply invest too much time, energy, and resources into their chosen startups not to carefully ensure their assets are properly accounted for and distributed according to their wishes. Angel investors must recognize the importance of regularly revisiting their estate plans to ensure alignment with their evolving portfolios.
By leveraging tools like Eternal Me and consulting with legal professionals versed in startup investments, investors can safeguard their assets and ensure their wishes are honored. This proactive approach also facilitates smoother transitions for beneficiaries in the event of unforeseen circumstances.
Eternal Me is the first solution that empowers you to manage your digital legacy with ease. Using Eternal Me's secure platform, you can set your wishes for each of your digital assets, accounts, and subscriptions, and ensure they're carried out flawlessly when the time comes.
Updating estate plans at the time of each new investment isn’t just financially prudent — it’s non-negotiable for the modern angel investor.
When was the last time you updated your estate plan?
