Why early planning for carried interest matters

18 December 2020
Chad Willbur

The path toward value creation

When investors establish new funds, they aim to create meaningful value for the entrepreneurs they support, the limited partners invested in the fund, and their partnership. If a fund is successful, investors make the vast majority of their profits from carried interest, a key component of the fee structure of most funds or special purpose vehicles (SPVs).

At the beginning of a typical 10 year fund, the path toward meaningful value creation is long and returns may feel far away. As part of helping investors manage their funds, we help investors think ahead through scenario modeling, portfolio insights, and transparent reporting. 

Planning for the future

We’re also launching a new carried interest valuation service at the point of fund formation. We guide investors through the tax implications of carried interest and walk through the important decisions investors can make in the early years of the fund to plan effectively for future events. 

Under current U.S. tax law, general partners pay capital gains on carried interest. As a tax planning strategy, many general partners gift carried interest to pass wealth on to family members or charitable organizations. Carried interest gifts are typically transferred to a trust rather than an individual or an organization in order to maximize tax-free growth. 

The best time to begin planning for the future is now. Talk to an expert to learn more about how Carta helps investors with tax planning. 

DISCLOSURE: This communication is being sent on behalf of Carta Investor Services, Inc. (“Carta”), an affiliate of eShares, Inc. dba Carta, Inc.  This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.