Transfer & structure
Estate & Inheritance Transfer of Startup Stock
Heirs generally inherit at a stepped-up basis — but valuing illiquid stock at date of death is its own challenge.
What it is
When a holder of private startup stock dies, beneficiaries generally inherit the shares at a "stepped-up" basis — fair value as of the date of death — rather than the original holder's cost basis.
Why it matters for a secondary
An illiquid, privately-held stake has no public price to reference at date of death, so establishing that value (often via an appraisal or a 409A-anchored estimate) is a real, separate task for the estate — distinct from any later secondary sale process the heir might go through. Transfer restrictions and ROFR clauses typically still apply to an inherited transfer the same way they would to any other, unless the company's documents specifically carve out an exception.
Quick facts
- Heir's new basis
- Stepped up to fair value at date of death, in most cases
- Original holder's unrealized gain
- Generally not itself income-taxed at death (separate estate tax may apply)
- Does ROFR still apply to an inherited transfer
- Usually yes, unless the company's documents specifically exempt it — check
Common mistake: Assuming an inherited private stake carries over the original holder's cost basis, rather than stepping up to date-of-death value.