Estate Planning for Tech Founders and Early Employees: Protecting Your Legacy

Add some content here.If you are a tech founder or early employee, estate planning is imperative for protecting a legacy that may already hold immense value or could in the future. There may also be value in assets you haven’t considered. You likewise don’t want your beneficiaries to have to rely on Washington state laws if you die intestate, particularly if you are unmarried. With these considerations in mind, here is what you should know about protecting your legacy and providing yourself and your loved ones with security should you become incapacitated or die. 

Protecting Equity and IP When You’re Gone

Equity and intellectual property are two of the most valuable assets in the tech world. That being said,  they’re also among the easiest to overlook when creating an estate plan. If you pass away without clear instructions, your equity could end up lost or going to someone you didn’t intend it to. The transferability of startup stock often depends on a company’s bylaws, and without adequate planning, your heirs may not be able to access your shares, whether to hold as an investment or sell.

Your IP is another matter. If you’ve created code, designs, or invented technology, those assets can continue to generate value long after you’re gone. But if you haven’t accounted for them legally, you could be setting your heirs up for future disputes over who owns what and who will benefit from it. That can lead to delays probating your will, court battles, and loss.

The good news is that a clear and exhaustive estate plan can address who inherits your assets, including your intellectual property, and how it will be distributed. You can even create a trust if you would like to dictate how specific assets will be managed after you’re gone. Whatever your plan, having one can ward against confusion and provide your loved ones the ability to act without unnecessary confusion, interference, or bureaucracy.

Just as with any asset, but especially with IP, which can be hard to track down, it’s helpful to keep detailed records and formalize ownership rights. Doing so will help your estate planning attorney to include detailed language regarding copyrights, patents, trademarks, or any licenses you hold or are expecting to receive. These assets can all be transferred or managed through your estate.

Putting a Value on Potential

Startups carry with them inherent risks. On the flip side, they can be the heralds of great reward. A thorough estate plan must account for both. Founders and early employees often hold assets that carry value in the potential they have. For example, you may own stock options, RSUs, or shares that haven’t vested. The thing is, even if these assets aren’t liquid and their value has yet to be determined, you can still account for them in your estate plan.

On a related note, when an individual dies, their estate may be responsible for paying taxes. This can become more complicated when some assets don’t yet have a firm value assigned to them. Consulting with a tax professional experienced in estate planning for tech founders and early employees can help your beneficiaries avoid surprises. Your Seattle estate planning attorney should have a network of professionals they know and trust to either refer you to or add to the team working on your estate plan.

Another consideration is timing. If there’s talk of a possible IPO, or an IPO is imminent and you’re in a holding period, your equity might not be transferable immediately. Your estate plan can, however, provide instructions as to how those shares should be treated once they become available.

The point is that you don’t need to know the exact future value of your assets to include them in your estate plan. What matters is that they’re accounted for and protected. This way, your loved ones don’t inherit uncertainty and with that, chaos and controversy. They inherit a roadmap for the future.

Estate Planning Documents for Tech Founders and Early Employees

As a tech founder or early employee in the tech industry, there are five estate planning documents you will want to include in your estate plan. Additionally, revocable and irrevocable trusts, described afterward, can help protect your assets, including intellectual property. 

Last Will and Testament (Will)

Your will explains what should happen to your assets after you die. It’s where you name someone to manage the process, called an executor. If you want, you can name co-executors. Your executor makes sure your instructions are followed, which includes handling your tech equity, private stock, or anything else you’ve accumulated.

Durable Power of Attorney for Finances

This document appoints someone you choose to manage your finances if you’re unable to. That could include paying bills, handling taxes, or managing your investment accounts and equity. It’s especially helpful if you’re involved in a startup and your assets aren’t straightforward.

Durable Power of Attorney for Health Care

This document allows the person you appoint to make medical decisions for you if you can’t speak for yourself. You decide who that person is, and they’ll work with your doctors to make the choices you would want made.

Advance Health Care Directive 

This document, sometimes called a living will, gives more detailed instructions about your medical care if you become seriously ill or incapacitated. It informs your loved ones and medical team what treatments you do or don’t want. That way, they’re not left guessing.

Declaration of Disposition of Remains Directive 

If you don’t want your loved ones wondering what to do with your remains when you die, this document instructs your loved ones about what you want to happen to you after you pass. Burial, cremation, service preferences, it’s all spelled out. This helps them avoid making hard choices during a painful time and gives them confidence that they’re honoring your wishes.

Revocable and Irrevocable Trusts

Below are two types of trust that can support an estate plan if you’re a Washington tech founder or early employee in a tech company. 

Revocable Trust

If you hold equity, IP, or other assets that could appreciate or complicate matters down the road, a revocable trust can offer both flexibility and protection. With a revocable trust, you retain control during your lifetime and can update the trust as you desire. As someone who maintains control, however, it’s important to remember that you are responsible for paying the taxes on it.

The trust owns the assets, not your estate, so they don’t go through probate. After you die, the trust becomes a legal entity unto itself, and the trustee you name must follow the instructions you provide without the involvement of a Washington court. Depending on your instructions, a revocable trust can potentially afford your heirs quicker access to your assets upon your death, if that’s your intention. 

Irrevocable Trust

Unlike a revocable trust, where the creator retains control during their lifetime, an irrevocable trust is a legally separate entity. Once you set it up, you can’t modify it unless the trust is dissolved, which is challenging to do. Because of this, many people choose to create testamentary trusts, trust that go into effect that are written into your will and go into effect upon death. 

The most obvious benefit of setting up an irrevocable trust during your lifetime is for the tax advantage it offers; the assets inside the trust are no longer counted as your property for tax purposes. That can reduce your estate’s tax burden. However, any income generated by the trust will become taxable to the trust’s beneficiaries.

How to Find a Seattle Estate Planning Lawyer to Protect Your Legacy

Getting started with estate planning doesn’t have to be overwhelming. You don’t need to have it all figured out or wait until you’ve hit a certain level of success to talk to a Washington estate planning attorney to learn more about how you can protect yourself and your loved ones. The most important thing is to get started. Contact us today or schedule a convenient time to speak.