With the One Big Beautiful Bill Act (OBBBA)’s higher estate and gift tax exemption taking effect after 2025, private equity professionals and fund managers have a valuable opportunity to revisit their estate plans. Carried interest transfers can help reduce future taxes and protect family wealth and for high-net-worth individuals, this is a good time to revisit estate plans to make sure they take full advantage of the higher exemption. Thoughtful planning can help reduce future taxes and protect assets for the next generation. Here’s how to make the most of this new landscape.

What changed under OBBBA?

Starting in 2026, the federal estate and gift tax exemption will increase to $15 million per individual (indexed for inflation), meaning each person can give away or pass on up to $15 million in assets without paying federal estate or gift tax. For private equity professionals and fund managers, this is important because your fund interests can appreciate significantly over time. Planning early by transferring some assets while values are still low and getting expert advice can protect your family’s wealth.

Using Fund Interests in Estate Planning

Hedge fund, private equity and venture capital interests offer a unique planning advantage. Fund managers can transfer a portion of their carried interest early (when valuations are still low and future growth potential is high).

Under IRC Section 2701, carried interest can’t be transferred on its own. Instead, there are two options:

1. Taxpayers can transfer a “vertical slice” across all classes of fund interests in the same proportion by transferring an equal share of their carried interest and their capital interest.
   
    
2. Another workaround is to transfer the benefit of caried interest in a fund through a “carry derivative” 

Early-stage valuations can make these transfers particularly efficient from a tax standpoint.

The Role of Valuations

Before a fund launches or raises significant capital, its taxable value for gift purposes is typically low. That’s why an independent valuation is essential to support the transfer and meet IRS gift tax reporting rules.

Valuations generally take into account:

• Assets under management at the time of transfer
• Investment strategy and volatility
• Carried interest structure
• Seed capital and lock-up terms
• Fee arrangements

Key Action Items

• Look at your estate plan now
• Consider giving some of your fund ownership early, when it’s worth less, so you can transfer more for less tax.
• Get an independent valuation – this proves to the IRS that the value you’re transferring is accurate.
• Work with experts – tax and legal advisors can set up trusts or partnerships so your plan follows the rules and protects your family’s money.

The Bottom Line: Make the Most of the $15 Million Estate and Gift Tax Exemption

With the $15 million exemption taking effect after 2025, fund managers shouldn’t wait to act. Reviewing your estate plan now, exploring early carried interest transfers, and securing independent valuations can help lock in substantial tax savings and protect family wealth for the next generation. The combination of a higher exemption and early-stage fund valuations makes this a smart time to review your estate plan and long-term goals.