Legal & Compliance
Step-Up in Basis
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.
Related Concepts
Further Reading
What 'Fully Diluted' Means and Why Employees Should Care
Your "1% ownership" might actually be 0.6% on a fully diluted basis. Here's what fully diluted means, how option pools dilute everyone, and how to calculate your real ownership.
LP vs GP: How Venture Capital Fund Structure Works
A clear explanation of how venture capital funds are structured, the roles of limited partners and general partners, fee economics, and how fund structure affects startup founders.
How Venture Capital Firms Make Money
Management fees, carried interest, and the math behind VC fund economics. Here's exactly how venture capital firms generate returns and get paid.
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