QSBS Stacking Trusts: How They Work and Who Should Run Them

Why QSBS planning is suddenly bigger than it was

In 1993, Congress set out to provide “relief for investors who risk their funds in new ventures [and] small businesses,” and enacted Section 1202 (§1202) of the Internal Revenue Code (IRC).[1] The provision created a capital gains exclusion for Qualified Small Business Stock (QSBS), defined in §1202(c), subject to limitations.[2] In 2025, the One Big Beautiful Bill Act (OBBBA) revised §1202 to make it even more attractive for investors and entrepreneurs.

The use of irrevocable trusts located in no-income-tax jurisdictions has become a popular strategy to “stack” the benefits of §1202 when a sale exceeds the exclusion threshold. By gifting QSBS to non-grantor trusts, which the IRS treats as separate taxpayers, the §1202 exclusion can be effectively multiplied. Structuring the strategy requires careful tax and legal planning.

Many articles outline the considerations in setting up one of these strategies. Few offer the trustee’s perspective. This article walks through how a stacking trust actually works, which trust types earn a separate exclusion and which do not, the roles you will need to fill and who should hold each, and what to consider when choosing a trustee.

How the Section 1202 exclusion has expanded since 1993

§1202 has grown more generous with every revision since Congress enacted it in 1993. Because QSBS treatment locks to the date the stock was acquired, the era that governs a given lot is fixed at acquisition rather than sale. The table below tracks how the gain exclusion, the required holding period, and the dollar limits have changed over time, through the One Big Beautiful Bill Act, which took effect on July 4, 2025.

Era (legislation)	Stock acquired	Gain exclusion	Holding period	Per-issuer cap	Company gross-assets limit
1993, Revenue Reconciliation Act (§1202 enacted)	Aug. 11, 1993 to Feb. 17, 2009	50%	More than 5 years	Greater of $10M or 10x basis	$50M
2009, American Recovery and Reinvestment Act	Feb. 18, 2009 to Sep. 27, 2010	75%	More than 5 years	Greater of $10M or 10x basis	$50M
2010, Small Business Jobs Act (made permanent by the PATH Act of 2015)	Sep. 28, 2010 to July 4, 2025	100%	More than 5 years	Greater of $10M or 10x basis	$50M
2025, One Big Beautiful Bill Act (OBBBA)	After July 4, 2025	50% / 75% / 100% (tiered)	3 yrs / 4 yrs / 5 yrs	Greater of $15M or 10x basis (inflation-indexed after 2026)	$75M (inflation-indexed after 2026)

As part of the OBBBA changes, stock held at least three years now earns a 50% exclusion, four years earns 75%, and five years still earns the full 100%. OBBBA also lifted the per-issuer cap from $10M to $15M and raised the company-level gross-assets ceiling from $50M to $75M, both indexed for inflation in tax years after 2026. [9]

Who qualifies for the QSBS exemption

To qualify for the QSBS exemption, the company must be a domestic C corporation whose aggregate gross assets do not exceed $75M at and immediately after issuance (the cap was $50M for stock issued on or before July 4, 2025). It must be an active qualified business, with at least 80% of its assets used in a qualifying trade or business, and it cannot operate in an excluded industry such as health, law, accounting, consulting, finance, hospitality, or farming. The stock itself must be acquired at original issuance, directly from the company rather than on a secondary market.

There are also minimum holding periods, which are the main roadblock for many investors being able to take advantage of the QSBS exemption or stacking strategies. Under the new OBBBA rules, there are 3/4/5-year tiers for stock described in the table above. Each subsequent threshold earns a larger QSBS exemption.

How much gain you can then exclude is capped at the greater of $15 million or ten times basis, and that cap applies per taxpayer, per issuer. The stacking strategy hinges on that last point. Gifting QSBS-eligible stock to additional taxpayers multiplies the exclusions available.

What is a QSBS stacking trust?

A QSBS stacking trust is a trust that holds gifted shares and claims its own §1202 exclusion. This lets a family take more tax-free gain on the same company’s stock than one person could alone.[11] When QSBS is gifted, the recipient keeps the original holder’s holding period and basis, so the shares stay QSBS-eligible. Under federal income law, certain trusts are treated as separate taxpayers, distinct from their grantors and beneficiaries. If a shareholder gives their QSBS to one or more qualifying trusts, each can claim its own exclusion.

Example (hypothetical). Suppose a founder holds QSBS with a basis of $500,000, acquired under the current OBBBA rules and held long enough to qualify for the full 100% exclusion. The company is acquired, and his shares carry a $60 million gain. His §1202 exclusion is the greater of $15 million or ten times his basis, and because ten times $500,000 is only $5 million, the $15 million floor applies. He excludes $15 million and pays capital gains tax on the remaining $45 million.

Now suppose that, well before the sale, he gifts most of the QSBS into four separate non-grantor trusts, one for his wife and one for each of his three children, and keeps enough stock to use his own $15 million exclusion personally. Each trust is its own taxpayer with its own $15 million exclusion. Counting his personal exclusion, the structure shelters $75 million of gain: $15 million for him and $15 million for each of the four trusts. That is more than enough to cover the $60 million gain and eliminate the roughly $10.7 million of federal tax he would otherwise owe on the $45 million. This is a simplified illustration that assumes each trust is respected as a separate taxpayer and that current tax rates apply.

The tax mechanics behind stacking

QSBS stacking strategies rely mainly on two sections of the IRC. §1202 creates the exclusion and the rules for gifting it. §643(f) sets the main limit on using trusts to multiply it.

Under §1202, the exclusion is capped per taxpayer. A non-grantor trust is a separate taxpayer from its grantor, so each one a founder gifts stock into claims its own exclusion. That is what makes trust stacking work. §1202(h)(2) governs the gift. When QSBS is gifted, the recipient inherits the donor’s basis and holding period, so the shares stay QSBS-eligible in the trust’s hands.[4]

§643(f) is the counterweight. It lets the IRS treat several trusts as one taxpayer when they share substantially the same grantor and beneficiary and a principal purpose of avoiding tax, which is the constraint a stacking structure has to be built around.[5][6] §1202(k) gives Treasury broader authority to write anti-abuse rules on top of it.

Trust types used for QSBS stacking

A trust can only stack QSBS if it is a separate taxpayer from its grantor at the time of the sale. That status is what lets it claim its own §1202 exclusion. Some of these trusts start out as grantor trusts but are drafted to toggle to non-grantor trusts before the sale. Getting that language right is a drafting question for an attorney. The trusts below are the ones used most often.

Incomplete non-grantor trusts: INGs, WINGs, DINGs, and NINGs

Certain states, such as Nevada, Wyoming, and Delaware, allow for incomplete non-grantor trusts (INGs). An ING is often called a “self-settled” trust because it lets the QSBS holder be both the grantor and a beneficiary. The trust is a separate taxpayer, so its income is not taxed back to the grantor. A few states, including California and New York, have anti-ING laws that treat the trust as a grantor trust for state purposes. California, for example, does not conform to §1202 and taxes QSBS gain in full, so a California resident who set up an ING to avoid that tax is pulled back to grantor treatment and taxed anyway.

With an ING, the grantor keeps certain powers over the trust assets. A testamentary limited power of appointment lets the grantor redirect the assets in their will, and a lifetime, non-fiduciary power to direct distributions, usually exercised through a distribution committee of adverse parties, governs distributions during life. Together these keep the gift incomplete under the §2511 regulations.

The incomplete gift lets the grantor add a separate §1202 exclusion without consuming any of the grantor’s lifetime gift and estate tax exemption. The grantor stays a discretionary beneficiary and the assets remain in the estate, where they get a stepped-up basis at death. The tradeoff is that because nothing leaves the estate, an ING provides no estate-tax benefit.

Because an ING is self-settled, the grantor is also the beneficiary, so standing up several INGs for one person would likely be considered a §643(f) target and risks being collapsed into a single taxpayer. In practice an ING adds one exclusion rather than multiplying them. Separately, the IRS has stopped issuing rulings on INGs while it studies their incomplete-gift and non-grantor treatment, though it has not moved against existing structures.[12]

SLANT: Spousal Lifetime Access Non-Grantor Trust

A spousal lifetime access non-grantor trust, or SLANT, is an irrevocable trust funded by a completed gift. The beneficiary class includes the grantor’s spouse, so the family keeps indirect access to the gifted shares. Because the gift is completed, the shares are no longer included in the grantor’s estate. This type of trust eats into the grantor’s lifetime gift and estate tax exemption, which is $15M in 2026.

Like the other trusts in this section, a SLANT is a separate taxpayer and claims its own §1202 exclusion. Under §677, a trust is usually treated as a grantor trust when the grantor’s spouse can receive distributions, so distributions to the spouse have to be gated by an adverse party’s consent, which is one of the requirements for keeping the SLANT a non-grantor trust.[7]

The spouse can also be given a limited power of appointment over trust assets, which lets them redirect assets to other beneficiaries, such as the couple’s children, while remaining a beneficiary themselves. The grantor is not a beneficiary but keeps indirect access through the spouse. That access depends on the marriage, so in a divorce, or if the spouse dies, the grantor can lose it.

IDGT: Intentionally Defective Grantor Trust

An intentionally defective grantor trust, or IDGT, is an irrevocable trust deliberately drafted to be a grantor trust for income tax purposes but a completed gift for gift and estate tax purposes.[13] Typically the defect is the §675(4)(C) power to substitute assets of equal value, called the “swap power,” which triggers grantor-trust status without causing estate inclusion.

While the trust is a grantor trust, the grantor pays the trust’s income tax. That payment acts as an additional tax-free gift to the trust beneficiaries, without eating into the grantor’s lifetime gift and estate tax exemption.

As a grantor trust, the IDGT does not stack QSBS by default. If the QSBS is sold while the IDGT is a grantor trust, the gain flows back to the grantor’s single §1202 exclusion. An IDGT stacks only if it is drafted with conversion, or “toggle,” language. Turning off the swap power before the sale converts the trust to non-grantor status. The conversion is generally not treated as a taxable transfer, and many practitioners take the position that §1202(h)(2) tacking of the holding period and basis carries through, though this point is not fully settled. The IDGT must be toggled, typically by the trust protector, before the sale of the QSBS it holds, and that timing must be handled carefully to avoid additional IRS scrutiny.

Roles in a QSBS directed trust

While structuring the QSBS trust is an attorney’s job, running the trust years before the sale and decades after is typically someone else’s. Most are set up as a directed trust, which lets the grantor put the best person or institution in each seat instead of handing everything to a single trustee. The common roles are listed below. Not every trust uses all of them, and the same role can work a little differently from one trust type to the next.

• Grantor – The person who creates and funds the trust by gifting QSBS into it. Once the gift is made, the grantor no longer owns the shares.
• Trustee – Holds legal title to the trust assets, follows the advisers’ instructions, keeps the records, and files the trust’s tax return. In a QSBS trust the trustee has to be independent. That independence is what keeps the trust a separate taxpayer, and the grantor cannot serve in this seat. Most trusts name an initial trustee and a successor trustee who steps in if the first one leaves.
• Investment adviser – The investment adviser’s role mainly begins after the sale, when the proceeds need to be invested and managed for the beneficiaries, often for decades. While the company is private there is little to manage, and voting the shares is deliberately kept away from the grantor so the stock stays out of the grantor’s estate. A successor investment adviser is usually named as a backup.
• Distribution adviser – Decides when and how much the trust pays out to its beneficiaries. In a SLANT or an ING, distributions to the spouse or the grantor run through this role so that an adverse party signs off, which is what keeps the trust out of grantor-trust status.
• Trust protector – Watches over the other roles and can remove and replace them. This is the most important role to get right. Because the protector can replace the trustee and the advisers, the wrong choice here can unwind the whole structure. In an IDGT, the protector is usually the one who toggles off grantor-trust status before a sale.
• Primary beneficiary – The person or people the trust is mainly set up to benefit and who can receive distributions first. In a SLANT this is usually the spouse. Sometimes called the current beneficiary.
• Contingent beneficiary – Someone who receives from the trust only if something happens first, such as the primary beneficiary passing away or giving up their interest.
• Remainder beneficiary – Whoever receives what is left in the trust when it ends.
• Ultimate beneficiary – The final beneficiary, named in case everyone above is gone. This is often a charity, such as a 501(c)(3).

Choosing the right trustee for a QSBS trust

The administration of the trust changes once the QSBS shares are sold. Pre-liquidity, the trust is light on administration, and our opinion is that trust services for this period should be priced lower. Post-liquidity, once the proceeds land and the beneficiaries’ expectations and ability to receive distributions begin, there should be a higher administration fee because the work required to manage the trust increases.

In a directed trust structure, you need a trustee flexible enough to work with several different parties. The trustee should have systems in place for communicating with beneficiaries, investment advisors, tax professionals, the trust protector and the other roles, while making sure the grantor has enough visibility to be confident everything is being administered appropriately. Just as important, the trustee has to be willing and able to custody the QSBS itself. Private company stock is illiquid, hard to value, and something most banks and brokerages will not hold in trust. And your trustee should be tech forward enough to integrate with the systems the other administrators are already using.

Anyone setting up a QSBS trust should strongly consider a corporate trustee. The trustee has to be independent for the trust to count as a separate taxpayer, and that separate-taxpayer status is the whole basis for its own §1202 exclusion.[14] A corporate trustee is the clean answer here because it brings that independence, it can custody private shares, and the relationship can run for decades. An institution does not age, fall ill, or lose interest the way an individual might, and it carries the trust through a team rather than a single person.

Why Nevada situs for QSBS trusts

Nevada has become a top destination for QSBS stacking and directed trusts. The §1202 exclusion is federal, so the state your trust sits in does nothing for the gain you already exclude, but state taxes still apply. Nevada has no income tax, so the gain above the exclusion and the portfolio income the trust earns for decades after the sale are not taxed by Nevada.

This matters most for founders in high-tax states. California, for example, does not follow the federal §1202 exclusion and taxes the full gain.[15] Setting the trust in Nevada can keep that gain away from the home state, but only if the trust has no connection the state can tax. California can reach a trust whose trustee or beneficiaries are California residents, so the structure has to be a genuine non-grantor trust with no such ties. This is a question for your drafting attorney.

Nevada also has well-developed directed trust statutes (NRS 163.5536 to 163.5557).[16] They let the grantor split the investment, distribution, and protector roles among different parties, and they protect the administrative trustee from liability for acting on an adviser’s direction. Nevada also offers strong asset protection, strong trust privacy, and a 365-year perpetuities period that suits trusts built to hold and grow wealth across generations.

Stacking, multiple trusts, and the Section 643(f) question

Let me just warn you: We don’t like stacking, OK?

Kenneth Kies [3]

Assistant Secretary of the Treasury for Tax Policy and Acting IRS Chief Counsel, speaking at a BakerHostetler seminar, May 20, 2026.

Commentators expect some form of anti-stacking guidance. Many point to IRC section 643(f), which directs that two or more trusts be treated as one if they have substantially the same grantor and primary beneficiary and a principal purpose is the avoidance of income tax. Others point to section 1202(k), which authorizes regulations to prevent the avoidance of the purposes of section 1202 and may be the cleaner fit.[17][18]

What is clear is that the statutes expressly allow gifting QSBS-eligible stock under section 1202(h), and private letter rulings (PLRs) have shown the IRS respecting these trusts as separate taxpayers, though a PLR binds only the taxpayer who requested it.[8] What is most likely in the crosshairs is the deliberate use of multiple trusts for similar beneficiaries, for example one trust for beneficiary A, another for beneficiary B, and yet another for beneficiary AB.

None of this is settled. Conservative, well-documented structures built around distinct beneficiaries with real non-tax purposes are widely expected to hold up, while trusts stacked for overlapping beneficiaries are the ones at risk. Anyone considering this should rely on their own attorney and tax adviser to design the structure. AET serves as trustee and custodian and does not provide tax or legal advice.

How AET administers QSBS trusts

American Estate & Trust is a Nevada-chartered trust company built for exactly the role this article describes. We serve as the independent directed trustee, which supports the trust’s status as a separate taxpayer while the investment, distribution, and protector seats stay with the people the family chooses.

We also hold the assets most banks and brokerages turn away. Private company shares are custodied and accounted for from the day the trust is funded, through the holding period, and into the diversified portfolio that follows a sale. Each trust sits on its own sub-ledger, so every lot, its cost basis, and its holding period are tracked separately and ready when the exclusion is claimed.

Our technology is built around this. Advisers and grantors get a real-time portal into trust holdings and activity, and our trust API connects the trust to the systems the other administrators already use, so everyone works from the same record.

QSBS stacking does not have to stand alone. We also custody self-directed Roth IRAs, so a founder can pair the trust strategy with Roth holdings and shield even more growth from tax under current rules.

Because the work is light before a liquidity event and heavier after, our pricing follows the same curve rather than charging full freight for years of simply holding stock.

We do not design the strategy or give tax advice. That stays with your attorney and CPA. We administer what they build, working alongside RIAs, family offices, and attorneys and CPAs. Learn more about why advisers choose AET.

References

[1] H.R. Rep. No. 103-111, at 600 (1993), the House committee report accompanying the Omnibus Budget Reconciliation Act of 1993 that enacted §1202. https://www.congress.gov/congressional-report/103rd-congress/house-report/111

[2] 26 U.S.C. § 1202(c), Qualified small business stock (definition). Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/uscode/text/26/1202

[3] Kenneth Kies, Assistant Secretary of the Treasury for Tax Policy and Acting IRS Chief Counsel, remarks on QSBS stacking at a BakerHostetler seminar, May 20, 2026, as reported in Venable, “QSBS Stacking in the Crosshairs?” https://www.venable.com/insights/publications/2026/05/qsbs-stacking-in-the-crosshairs

[4] 26 U.S.C. § 1015, Basis of property acquired by gifts and transfers in trust (carryover basis). Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/uscode/text/26/1015

[5] 26 U.S.C. § 643(f), Treatment of multiple trusts. Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/uscode/text/26/643

[6] Treas. Reg. § 1.643(f)-1, Treatment of multiple trusts (finalized in TD 9847, Feb. 2019). Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/cfr/text/26/1.643(f)-1

[7] 26 U.S.C. §§ 671-679, Grantor trust rules (Subpart E). Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/uscode/text/26/671

[8] IRS Private Letter Ruling 201908006 (released Feb. 22, 2019). Internal Revenue Service. https://www.irs.gov/pub/irs-wd/201908006.pdf

[9] Baker Tilly, “Changes to Section 1202 - Qualified Small Business Stock.” https://www.bakertilly.com/insights/changes-to-section-1202-qualified-small-business

[10] McLane Middleton, “OBBBA Changes to the QSBS Regime Under Section 1202: A Comprehensive Overview.” https://www.mclane.com/insights/obbba-changes-to-the-qsbs-regime-under-section-1202-a-comprehensive-overview/

[11] Foley & Lardner, “QSBS Stacking: Leveraging Gifts and Trusts for Additional Section 1202 Exclusions.” https://www.foley.com/p/102mrpy/qsbs-stacking-leveraging-gifts-and-trusts-for-additional-section-1202-exclusions/

[12] Greenleaf Trust, “Non-Grantor Trusts, OBBBA, and IRC 643(f).” https://greenleaftrust.com/missives/non-grantor-trusts-obbba-and-irc-643f/

[13] Greenleaf Trust, “When Is a Trust a Grantor Trust?” https://greenleaftrust.com/missives/when-is-a-trust-a-grantor-trust/

[14] Asena Advisors, “IRC §674 - Regulations & Exceptions.” https://asenaadvisors.com/blog/irc-674/

[15] Keystone Global Partners, “QSBS State Tax Treatment.” https://keystonegp.com/insights/qsbs-state-tax/

[16] Nevada Revised Statutes, Chapter 163, Directed Trusts (NRS 163.5536 to 163.5557). https://nevada.public.law/statutes/nrs_chapter_163_sub-chapter_directed_trusts

[17] Pillsbury, “QSBS Stacking and Potential Treasury Guidance.” https://www.pillsburylaw.com/en/news-and-insights/qsbs-stacking.html

[18] Griffin Bridgers, “Trust Aggregation: IRC Section 643(f).” https://griffinbridgers.substack.com/p/trust-aggregation-irc-section-643f