Silicon Valley is Obsessed with 'trust Stacking,' and the IRS Doesn't Like It

A hot tax break beloved by company founders and angel investors is expanding so rapidly that it is drawing the ire of the Trump administration.

At issue is what is known as trust stacking, which multiplies the benefits of a tax break for investors in small companies by two, three, four or even more times. The Qualified Small Business Stock tax break, or QSBS, allows founders to exclude up to $15 million in capital gains from their taxable income. But people are trying to exclude $60 million and beyond by transferring shares to trusts in their relatives' names.

Treasury Department officials in this administration typically take a pro-taxpayer posture, but they have signaled a coming crackdown.

"Let me just warn you," said Kenneth Kies, the Treasury's top tax-policy official, in a speech last month. "We don't like stacking, OK?"

QSBS lets investors and founders avoid what would otherwise be as much as a 23.8% tax on the sale of shares. Created in 1993 and expanded since then, it enjoys bipartisan support because it is linked to the small businesses , entrepreneurship and early-stage investment that lawmakers want to promote.

These days, QSBS is frequently used in technology startups, where the goal is to get big. Last year's tax law sweetened the QSBS break further, raising the cap to $15 million from $10 million for stock acquired since July 4, 2025, and increasing the maximum size of companies that count as small businesses. Stock must be held for five years for the full exclusion.

The law explicitly allows investors to transfer shares to others and have each taxpayer qualify for an exclusion. That enabled stacking to become a core part of founders' early plans, and it will constrain the administration's ability to combat stacking.

The basic idea requires giving away shares to trusts when they aren't worth much. That minimizes the gift-tax hit for the founder and ensures that each piece of the stack can get its own $15 million exclusion when the company is worth more.

"I'm definitely doing more QSBS stacking," said Michael Arlein, a trusts-and-estates lawyer at Patterson Belknap in New York, who said he is confident that his approaches fit well within the law and any possible Treasury rules. "I haven't changed anything that I'm doing."

The QSBS break is estimated to reduce federal revenue by $4.9 billion this year, according to the congressional Joint Committee on Taxation, more than triple what it was in 2017. From 2012 through 2022, taxpayers claimed QSBS exclusions of $140 billion, according to a 2025 Treasury Department study. The exclusions peaked in 2021 at about 2.5% of all capital gains. That year, trusts and estates made 17.5% of QSBS claims, far more than a decade earlier.

A cottage industry of advisory firms has been popping up to facilitate QSBS stacking, attracting clients with advertising and lower trust fees than what attorneys would charge.

Alejandro Chesser started GetDynasty, which offers QSBS packages for up to four trusts. He argues that this kind of trust planning should be more affordable for company founders. Chesser said his firm, set up as a Nevada trust company, has aided 500 customers in 10 months.

"Giving away money to other people is a really good thing," he said. "It's about redistributing your wealth. Who do you actually want to give your wealth to?

Kies, the tax policy official, said the administration will likely propose rules aimed at limiting QSBS stacking. The new rules could target what the government sees as aggressive planning. The most aggressive versions effectively set up multiple trusts for the same taxpayer.

Imagine a founder has three children, John, Jane and Joan, and sets up trusts for each of them, turning the $15 million maximum exclusion into $60 million.

"People are going beyond that and they're setting up other trusts," Kies told reporters recently. "It's something we're taking a close look at."

If the founder sets up an additional trust jointly for John and Jane, and another for John and Joan and another for Jane and Joan, that could run afoul of the forthcoming rules.

The Treasury Department and the IRS never published comprehensive regulations on the break and there has been minimal guidance from courts.

That lack of rules and any requirements for detailed taxpayer reporting to the IRS leave the break without effective guardrails, said Manoj Viswanathan, a professor at UC Law San Francisco, who described the effectively unlimited stacking as absurd.

"You're kind of emboldened. No one's even come close to the line," said Viswanathan, who has studied the break and argues that the incentive doesn't do much to increase entrepreneurship.

In advance of details from the Treasury Department, tax advisers have been urging clients to be cautious.

Two unmarried childless brother co-founders came to Paul Lee of Consiglio Advisors to review a plan with 18 trusts between them. It was structured so a supposedly independent committee could decide to add the brothers as beneficiaries after the exit.

"I told them not to do it," Lee said. "If the only motivation is just to multiply the $15 million per taxpayer exclusion just for the benefit of themselves, that's where it goes too far."

The IRS is pursuing cases in audits that look more like tax avoidance than legitimate planning, advisers said, such as people who set up trusts just before selling their company.

"Planning around this that is done at the time of a binding letter of intent is not going to be successful," said Daniel J. Studin, a trusts-and-estates lawyer at Morrison Cohen in New York.

If you're considering trust planning, do that early, advisers say. You want to transfer shares at the early stage when the stock is worth next to nothing. And document the estate-planning-use case for doing so.

"I worry when people start veering into the tax lane and saying look how powerful this tool can become and what we can do," said James Creech of tax and advisory firm Baker Tilly. "There's so many ways for this to go wrong."

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com, Richard Rubin at richard.rubin@wsj.com and Peter Santilli at peter.santilli@wsj.com

(END) Dow Jones Newswires

"Silicon Valley Is Obsessed With 'Trust Stacking,' and the IRS Doesn't Like It," at 12 p.m. ET, incorrectly spelled Alessandro Chesser's first name as Alejandro.

(END) Dow Jones Newswires

June 29, 2026 13:55 ET (17:55 GMT)

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