QSBS Stacking Trusts: Powerful, but Not a Free-for-All
Treasury has said it does not like QSBS stacking. The right response is not to stop planning but to plan early, give each trust a real purpose and skip the overlapping beneficiary combinations that drew the warning.
In May 2026, Treasury's assistant secretary for tax policy told a professional audience that the department does not like the practice of multiplying the qualified small business stock exclusion through stacks of trusts, and that practitioners should keep an eye out for guidance.1 My take: this is not a reason to stop planning. It is a reason to plan carefully.
Why the exclusion is worth planning around
Section 1202 excludes gain on the sale of qualified small business stock held more than five years, up to the greater of $15 million or ten times the taxpayer's basis in the stock, per issuer. For stock issued after July 4, 2025, the 2025 law raised the cap from $10 million to $15 million, indexed after 2026, raised the issuer's gross asset ceiling from $50 million to $75 million, and added partial exclusions of 50 percent at three years and 75 percent at four years.2 The cap is per taxpayer. A trust that is a separate taxpayer for income tax purposes has its own cap, and stock received by gift keeps its character as qualified small business stock and tacks the donor's holding period.3
That is the legitimate core of the strategy: a founder with a $60 million gain can give stock to several nongrantor trusts for different children, each of which may exclude up to $15 million of gain on a sale.
What drew the warning
The structures Treasury described are the ones that create a separate trust for child A, child B and child C, then add a trust for A and B, another for B and C, and so on, each claiming its own exclusion. That is a different animal from a conservative structure with separate nongrantor trusts for distinct beneficiaries, real economic substance, independent administration and attention to the trust tax, gift tax, GST and anti abuse rules.
Two provisions give the Service tools. Section 643(f) lets Treasury treat multiple trusts as one when they have substantially the same grantor and primary beneficiaries and a principal purpose is avoiding income tax.4 Section 1202(k) authorizes regulations to prevent avoidance of the purposes of section 1202 itself.5 Whether either reaches a particular structure is a question of fact and of drafting, which is why the overlapping beneficiary designs are the ones most exposed.
Doing it the right way
We currently have a founder client who has engaged us to prepare five planning trusts in anticipation of a liquidity event. He is approaching it correctly: early, shortly after formation of the C corporation, before the expected appreciation has occurred, when the gift and GST exemption consumed by each transfer is still very low. Each trust has a distinct beneficiary and a distinct purpose. The trusts will be South Dakota domestic asset protection trusts administered by an independent trustee, combining the exclusion planning with long term asset protection, dynasty planning and professional fiduciary administration.
The lessons from the Treasury comments are these:
- Do not ignore the opportunity. The exclusion is in the statute and Congress just expanded it.
- Do not overreach. Overlapping beneficiary combinations exist only to multiply a tax benefit, and everyone can see that.
- Plan early, document carefully and respect the trust structure. Each trust should have a real purpose beyond the exclusion, its own trustee decisions and its own administration.
The best tax planning is usually not the most aggressive version of a strategy. It is the version that still works when someone asks hard questions later.
Notes
- Remarks of Kenneth Kies, Assistant Secretary of the Treasury for Tax Policy, at a BakerHostetler seminar, May 20, 2026, as reported in Bloomberg Tax, "Popular Silicon Valley Tax Strategy Gets Warning From Treasury" (May 2026). ↩
- I.R.C. section 1202(a)(4), (b)(1) and (d)(1), as amended by Pub. L. 119-21, section 70431 (July 4, 2025). ↩
- I.R.C. section 1202(h)(1), (h)(2)(A). ↩
- I.R.C. section 643(f); Treas. Reg. section 1.643(f)-1. ↩
- I.R.C. section 1202(k). ↩
Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA, is a tax, trust and estate attorney in Fort Lauderdale, Florida, and Head of Estate and Tax Planning at Alta Trust Company. He is a former tenured professor of law at Syracuse University. Reach him at tl@turnipseed.law or on LinkedIn. This article is general information, not legal advice.