As a trust and estate planning attorney, I'm seeing a significant increase in clients asking about Qualified Small Business Stock (QSBS) trust stacking. With startup valuations rising and Section 1202 offering substantial capital gains exclusions, it's no surprise that founders are looking for ways to maximize this valuable tax benefit.

QSBS trust stacking involves transferring QSBS to multiple separate taxpayers, often irrevocable non-grantor trusts, to multiply the available Section 1202 exclusion. A common example is a founder creating a separate trust for each child. Because each qualifying trust is generally treated as its own taxpayer, each trust may potentially claim its own QSBS exclusion upon a future sale of the stock, provided all statutory requirements are satisfied.

While this planning technique has become increasingly popular, practitioners should proceed thoughtfully. The IRS and Treasury have not yet issued formal guidance specifically addressing QSBS trust stacking, leaving many unanswered questions. However, Treasury officials have made their views clear. Treasury's top tax-policy official, Kenneth Kies, recently cautioned:

"Let me just warn you. We don't like stacking, OK?"

Those comments strongly suggest that administrative guidance may be forthcoming, particularly targeting aggressive structures that appear designed primarily to multiply the exclusion rather than accomplish legitimate estate planning objectives.

Trusts established well before a liquidity event and supported by genuine donative and estate planning purposes are likely to be viewed differently than last-minute tax-driven transactions. As always, the facts matter.

I'll be watching closely as Treasury and the IRS provide additional guidance in this evolving area.