How Much Longer Can Founders and Investors Use Trust Stacking?
Earlier this summer, the Treasury Department cast a spotlight on trust stacking. As reported by The Wall Street Journal, Kenneth Kies, Treasury’s top tax-policy official, warned: “Let me just warn you, we don’t like stacking, OK?” Founders and investors have taken notice.
Since the 1990s, founders and other investors in qualifying startups have been able to shield millions in capital gains on the sale of qualified small business stock (QSBS) under Section 1202. Last year, Congress expanded those benefits under the OBBBA. For qualifying stock acquired after July 4, 2025, investors can potentially exclude up to $15 million of capital gains (or 10x their basis), subject to the applicable holding-period requirements.
Savvy investors have long multiplied those savings through “trust stacking.” For example, a founder could establish separate non-grantor trusts for each of his three children and transfer 25% of his qualifying shares to each. The founder and each trust could potentially qualify for its own $15 million exclusion — $60 million in total.
One interesting feature is that the trusts can generally tack onto the founder’s holding period. A trust receiving QSBS by gift does not necessarily start the clock all over again.
I am a corporate lawyer, not a tax lawyer. But I have represented numerous founders and investors who have taken advantage of QSBS through the sale of their companies. We have also worked with clients who exited one QSBS investment and rolled the proceeds into another under Section 1045. These rules can have an enormous impact on the economics of an exit.
Not surprisingly, a cottage industry has developed around maximizing these benefits, and some strategies are more aggressive than others.
The IRS is looking closely at arrangements designed principally to multiply exclusions without much substance behind separate trusts. Treasury officials have specifically raised concerns about multiple trusts with overlapping beneficiaries.
Timing matters too. If a founder waits until the sale is essentially a done deal before transferring shares to newly created trusts, the IRS may argue that he simply assigned income from an already-fixed sale. As the WSJ notes, advisers are particularly wary once there is a binding commitment to sell.
That does not mean legitimate trust stacking is going away. Separate non-grantor trusts for genuinely different beneficiaries have long been part of estate and QSBS planning. But Treasury has signaled that additional guidance is coming.
For founders and investors holding QSBS, the broader lesson is familiar: planning for an eventual exit should begin well before the exit. If a trust or other wealth-transfer strategy makes sense, establishing it before the shares skyrocket in value — and certainly before the sale process is effectively committed — can make an enormous difference.