Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Your startup investments will likely outlive you.

That's not morbid. It's math. The typical venture investment takes seven to 10 years to see liquidity. But in recent years, that timeline has stretched. IPO markets are slower. Exit activity is lower. Capital is getting tied up longer than the historical average.

If you're an active angel investor in your 40s or 50s, many of your investments won't have liquidity events until you're in your 60s or 70s. Some might take even longer. That creates real estate planning challenges most angels don't think about until it's too late.

The Illiquidity Problem

Startup equity isn't like stocks or real estate. You can't sell it easily. You can't value it precisely. You can't divide it cleanly.

Most angel investments are made through SAFEs or convertible notes that haven't converted yet. These instruments aren't even on the company's cap table until a priced round triggers conversion. Your heirs might not know these investments exist.

Even after conversion, the shares are restricted. There's no public market. Private secondary markets are shockingly hard to navigate, even for experienced investors. You need the company's permission to transfer shares. You need to find a buyer willing to take on illiquid assets. The whole process is messy.

At Hustle Fund, we've seen portfolio companies where early angels died and their families had no idea they held equity in startups. The investments were small enough that nobody paid attention. But if one of those companies becomes a unicorn, that's generational wealth left on the table.

Valuation Uncertainty

How do you value illiquid startup equity for estate purposes? The honest answer is you mostly guess.

A company might have raised at a $10 million valuation three years ago. Is it worth $50 million now because it's grown? Or $2 million because it's struggling? Without a recent funding round, you don't know.

The IRS has rules about fair market value for estate tax purposes. But determining fair market value for a pre-revenue startup with no comparable companies is more art than science. You might need a formal 409A valuation, which costs money and still involves significant assumptions.

Elizabeth Yin talks about how valuations were never really about company worth but about supply and demand dynamics. In hot markets, companies get marked up quickly. In cold markets, they stagnate. Your estate value could swing wildly based on timing.

This uncertainty makes it hard to plan. If your startup portfolio is theoretically worth $5 million but realistically worth $500,000, how do you structure your estate? You can't leave all the illiquid assets to one heir and expect it to be fair.

Tax Implications

Startup equity held until death gets a step-up in basis. That means your heirs' cost basis resets to the fair market value at your death, potentially eliminating capital gains taxes on appreciation.

This is valuable. If you invested $25,000 that's worth $500,000 when you die, your heirs inherit it with a $500,000 cost basis. When they eventually sell, they only pay capital gains on appreciation above that $500,000.

But realizing that benefit requires your heirs to actually hold the equity until liquidity. If they need money before the company exits, they're stuck.

Qualified Small Business Stock (QSBS) adds complexity. Under Section 1202, some startup investments can be exempt from federal capital gains taxes if held for at least five years. But there are specific requirements. The company must be a C corporation, it must have been in business for at least five years, and the stock must have been issued after 1993.

QSBS benefits transfer to heirs, which is valuable. But you need to document which shares qualify and ensure your heirs understand the rules. If they sell before the five-year holding period ends, they lose the exemption.

Creating a Roadmap

Your heirs need to know what you own. That sounds obvious, but most angels don't maintain organized records.

You're using AngelList for some investments, direct shares for others, maybe some SPVs. You've got SAFEs that haven't converted and notes from rolling funds. Some investments were made through LLCs. Others were direct.

Create a document that lists every startup investment with the following: company name, amount invested, date invested, current valuation if known, where the shares are held, and any special terms or restrictions.

Update this document annually. When companies send investor updates, save them. When SAFEs convert, note it. When companies go through acquisitions or shut down, document it.

Your estate attorney needs to understand venture timelines. Most estate planning assumes assets are either liquid or have predictable timelines. Startup equity is neither. You need someone who understands that some investments might not have outcomes for 15 years.

Structuring for Flexibility

Some angels create separate LLCs or trusts to hold startup investments. This can simplify transfers and provide flexibility.

An LLC can continue holding the investments after you die while your heirs decide what to do. This is especially useful if you have multiple heirs who might disagree about whether to hold or sell once liquidity becomes available.

A trust can provide specific instructions about how to handle startup investments. You can name a trustee with investing experience who can make decisions about exercising pro rata rights, participating in secondary sales, or holding for eventual exits.

At Hustle Fund, we've worked with limited partners who structure their commitments through family trusts specifically to handle these complexities. The trust continues regardless of what happens to individual family members.

Communication with Heirs

Your family needs to understand what they're inheriting. Startup equity is not the same as stocks or bonds.

They need to know most investments will fail. The ones that succeed will take years. They shouldn't count on any particular investment for financial planning. They should think in terms of portfolios, not individual companies.

If you've invested in 20 startups, explain that 10 might return zero, five might return 1X to 2X, three might return 5X to 10X, and maybe two will return enough to make the whole portfolio worthwhile. That's normal.

Explain the concept of illiquidity. They might inherit equity worth $1 million on paper, but they can't spend it until there's an exit. That could be next year or in 10 years. They need other sources of income.

Some angels involve their heirs in investment decisions while alive. Bring them to startup pitches. Share investor updates. Teach them how to evaluate companies. When they eventually inherit the portfolio, they'll understand what they're managing.

Handling Active Roles

If you're not just an angel but also serve on advisory boards or help portfolio companies actively, document what's expected after you're gone.

Some advisors have formal agreements with equity tied to ongoing participation. If you die, does the company have the right to buy back those shares? Do your heirs need to continue providing value to retain them?

If you're making angel investments through a fund or syndicate, what happens to your carried interest? Who makes future investment decisions? These questions need answers before they become urgent.

Nicole Quinn from Lightspeed talks about venture remaining a relationship business. Those relationships don't automatically transfer to heirs. Your value to portfolio companies might have been specific introductions, advice, or credibility. Your heirs probably can't provide the same value.

The Dry Powder Problem

Many angels have committed capital to funds or rolling funds that gets called down over time. If you die with uncalled capital commitments, your estate might still owe that money.

A capital call from a venture fund has legal obligations. If your estate doesn't honor it, there are severe consequences and reputation damage. Your estate plan needs to account for potential future capital calls on existing commitments.

This is tricky because you don't know exactly how much will be called or when. Fund managers typically call capital over three to four years, but exact timing varies. Your estate needs liquidity to cover these commitments.

When to Sell

Private secondary markets have improved, but they're still difficult. Platforms like AngelList and Forge make it easier to sell startup shares, but transactions require company approval, buyer interest, and often significant discounts.

Your heirs might want to sell quickly to get liquid assets. That usually means accepting 30% to 50% discounts to the last funding round valuation. Is that okay? It depends on their financial needs and the investment's prospects.

As an angel, you should consider whether to give your heirs explicit guidance. Some investors say, "Hold everything for at least X years after my death." Others say, "Sell opportunistically when you need money." There's no right answer, but the conversation should happen.

Insurance and Backup Plans

Some angels buy life insurance sized to cover potential estate taxes on their startup portfolios. This provides liquidity to pay taxes without forcing fire sales of illiquid assets.

Others maintain significant liquid assets specifically to ensure heirs aren't dependent on startup exits for financial stability. If your portfolio is 90% illiquid startup equity and 10% cash, your heirs might be rich on paper but broke in practice.

Having a backup plan matters. What if all your startups fail? What if they take 20 years to exit? Your estate should be structured so your heirs can survive those scenarios.

The Long View

Angel investing is already a long-term game. When you add estate planning, the timeline extends even further.

At Hustle Fund, we're optimistic about venture's future despite current challenges. Markets cycle. IPO windows reopen. Great companies eventually find exits. But timing is unpredictable.

The angels who successfully pass wealth to the next generation are the ones who plan for uncertainty. They document everything. They communicate clearly. They create structures that can handle decades-long timelines.

If you're actively building an angel portfolio, estate planning shouldn't be an afterthought. Start documenting now. Talk to your family now. Work with attorneys who understand venture timelines now.

Your investments might create generational wealth. Make sure that wealth actually makes it to the next generation.

Join Angel Squad to connect with investors and advisors who understand the unique challenges of estate planning for illiquid startup portfolios and can share strategies that work across different family situations.