Legal & Compliance
Last updated
Quick Answer
A tax provision that resets the cost basis of inherited assets to their fair market value at the time of the owner's death.
A step-up in basis adjusts the tax basis of an inherited asset to its current market value, eliminating capital gains tax on appreciation that occurred during the deceased owner's lifetime. This has significant implications for estate planning around venture fund interests and startup equity.
In Practice
An LP invested $1M in a fund now worth $10M. If passed to heirs, the tax basis resets to $10M, eliminating $9M in potential capital gains taxes.
Why It Matters
Understanding step-up provisions is important for LPs doing estate planning around illiquid venture fund interests, especially for family offices with generational wealth transfer strategies.
VC Beast Take
Step-up in basis is the most underappreciated wealth preservation tool in venture capital, yet most founders ignore estate planning until it's too late. The ultra-wealthy have built generational fortunes by gifting low-basis startup equity to family trusts before major liquidity events. This isn't just for billionaires—any founder with meaningful equity should understand these mechanics. The current political environment makes this provision vulnerable, so sophisticated families are accelerating their planning timelines.
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A step-up in basis adjusts the tax basis of an inherited asset to its current market value, eliminating capital gains tax on appreciation that occurred during the deceased owner's lifetime. This has significant implications for estate planning around venture fund interests and startup equity.
Understanding Step-Up in Basis is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Step-Up in Basis falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
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