Trust stacking sounds complicated, but the basic idea is simple. A person who owns valuable startup stock puts pieces of that stock into different trusts. If the trusts are treated as separate taxpayers, each trust may be able to claim its own tax break when the stock is sold.
That is why Silicon Valley founders, angel investors, and advisers have become so interested in the strategy. It can turn one large tax break into two, three, four, or even more tax breaks. The IRS and Treasury Department do not like the aggressive versions, especially when the trusts appear to exist mainly to multiply tax savings.
Kenneth Kies, the Treasury Department’s top tax-policy official, gave a blunt warning: “We don’t like stacking, OK?”
Step 1: What Is a Trust?
A trust is a legal arrangement used to hold property for someone else.
There are usually three main roles. The grantor creates the trust and puts assets into it. The trustee manages the trust. The beneficiaries are the people who may receive money or property from the trust.
People use trusts for many legitimate reasons. A trust can help avoid probate, protect assets from certain creditors, manage money for children, provide for a disabled family member, support charity, reduce estate taxes, or pass wealth to future generations.
A basic revocable living trust is often used for estate planning, but it usually does not protect assets from creditors or reduce estate taxes because the person who created it still controls the assets. More advanced planning often uses irrevocable trusts, which can move assets farther away from the grantor.
Step 2: What Is QSBS?
The trust-stacking controversy is mostly about Qualified Small Business Stock, known as QSBS.
QSBS is a special tax break for investors and founders who own stock in certain small businesses. If the rules are met, the shareholder can exclude a large amount of capital gain from federal income tax when the stock is sold.
The article explains that the exclusion was previously up to $10 million, but for stock acquired since July 4, 2025, the cap rose to $15 million. The stock generally must be held for five years to get the full exclusion.
This is a powerful benefit. Without the break, a founder selling valuable stock might face federal capital gains tax of as much as 23.8%. With the break, part of the gain can be excluded.
Step 3: What Is Trust Stacking?
Trust stacking means spreading QSBS among several taxpayers, often several trusts, so that each taxpayer may claim its own exclusion.
Here is the simple version.
A founder owns startup stock. Early in the company’s life, the stock may be worth very little. The founder gives some shares to trusts for family members. Later, if the company becomes valuable and is sold, each trust may be treated as a separate taxpayer. Each trust may then claim its own QSBS exclusion.
That is the “stack.” The founder gets one exclusion. Trust one gets another. Trust two gets another. Trust three gets another.
The benefit multiplies.
Step 4: A Simple Example
Imagine a founder sells stock for $60 million.
Without QSBS, the founder might owe tax on the full gain.
With QSBS, the founder may be able to exclude $15 million and pay tax on the remaining $45 million.
Now add trust stacking. If the founder created three qualifying nongrantor trusts, the founder and each trust may each claim a $15 million exclusion. That creates four $15 million exclusions.
Four times $15 million equals $60 million.
In that example, the entire $60 million gain could potentially be excluded from federal income tax.
That is why the strategy is so attractive.
Step 5: Why People Use Trust Stacking
People use trust stacking for three main reasons.
The first reason is tax savings. A single QSBS exclusion is already valuable. Multiple exclusions can be worth millions of dollars.
The second reason is estate planning. If the founder gives away shares early, when they are worth little, future growth can move outside the founder’s estate. That may help pass wealth to children, grandchildren, or other beneficiaries.
The third reason is control. Instead of giving shares outright to a child or relative, the founder can put shares in a trust. The trustee can control when money is distributed. That can protect young beneficiaries from spending the money irresponsibly.
As Alessandro Chesser of GetDynasty put it, “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?”
Step 6: What Kind of Trusts Are Used?
The key trust type is usually a nongrantor trust.
A grantor trust is treated as owned by the grantor for income tax purposes. That means it normally does not create a separate taxpayer for QSBS stacking.
A nongrantor trust is different. It can be treated as a separate taxpayer. That is why it can potentially claim its own QSBS exclusion.
The supplied material mentions several possible structures, including trusts for family members, spousal lifetime access nongrantor trusts, incomplete gift nongrantor trusts in places such as Wyoming, Delaware, and Nevada, charitable lead trusts, charitable remainder trusts, and dynasty trusts.
The details vary, but the main point is the same. If the trust is a real separate taxpayer and meets the rules, it may be able to claim a separate exclusion.
Step 7: How Many Trusts Can Be Used?
There is no simple magic number.
Some planning may involve one trust per child. For example, a founder with three children might set up three trusts, one for each child. The founder plus three trusts could create four exclusions.
Some advisers also discuss adding a “pot trust” for several children together. But the more trusts someone creates, especially with overlapping beneficiaries, the more risk there is.
The article gives a striking example. Two unmarried, childless brother co-founders came to adviser Paul Lee with a plan involving 18 trusts between them. The plan would allow a supposedly independent committee to add the brothers as beneficiaries after the exit.
Lee rejected the idea. “I told them not to do it,” he 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.”
Step 8: How Much Can Someone Save?
The savings can be enormous.
QSBS can avoid federal tax of up to 23.8% on excluded capital gains. A single $15 million exclusion could save millions of dollars in federal tax.
If a founder multiplies the exclusion through trusts, the savings multiply too.
For example, if one exclusion shelters $15 million, then four exclusions can shelter $60 million. At a potential 23.8% federal tax rate, avoiding tax on $60 million could mean avoiding roughly $14 million in federal tax.
That is why the IRS is paying attention.
Step 9: What Are the Legitimate Legal Protections?
Trusts can provide real legal benefits beyond tax savings.
A properly drafted irrevocable trust may protect assets from certain creditor claims, divorce disputes, lawsuits, or poor financial decisions by beneficiaries. A special needs trust can preserve benefits for a disabled beneficiary. A charitable trust can support philanthropic goals. A generation-skipping or dynasty trust can help preserve wealth for future generations.
Multiple trusts can also make sense when one family has several different goals. One trust may hold life insurance. Another may hold business interests. Another may protect a disabled child. Another may support charity.
In that context, multiple trusts are not suspicious by themselves. They can be normal estate planning.
Step 10: Why the IRS Does Not Like Aggressive Trust Stacking
The IRS problem is not simply that people use trusts. The problem is when the trusts look artificial.
The IRS may object when several trusts have nearly the same grantor, the same beneficiaries, the same purpose, and no strong reason to exist except tax avoidance.
One anti-abuse rule allows the IRS to treat multiple trusts as one trust if they have substantially the same beneficiaries and no independent non-tax reason for being separate.
That matters because if several trusts are collapsed into one, the taxpayer may lose the extra QSBS exclusions.
Treasury officials are especially concerned about people going beyond one trust per child and creating extra overlapping trusts for combinations of the same beneficiaries.
Step 11: Timing Is Critical
The safest trust stacking happens early.
Advisers say founders should transfer shares when the company is young and the shares are worth very little. That reduces gift-tax problems and makes the planning look more like real estate planning.
The riskiest version happens at the last minute, when the company is already close to being sold.
Daniel J. Studin, a trusts-and-estates lawyer, warned, “Planning around this that is done at the time of a binding letter of intent is not going to be successful.”
That means a founder should not wait until a buyer is already lined up and then rush shares into trusts. The IRS may argue that the sale was already effectively happening and that the trust transfer was just a tax dodge.
Step 12: The Bottom Line
Trust stacking can be legitimate. A founder may legally give stock to family members or properly structured nongrantor trusts. Each separate taxpayer may be able to claim its own QSBS exclusion if the rules are followed.
But the strategy becomes dangerous when it is pushed too far.
A few real trusts with real beneficiaries, real administration, and real estate-planning reasons are very different from 18 trusts designed mainly to multiply a tax break and route the money back to the founder.
That is the line the IRS is watching.
James Creech of Baker Tilly gave the practical warning: “I worry when people start veering into the tax lane and saying look how powerful this tool can become and what we can do.” He added, “There’s so many ways for this to go wrong.”
Trust stacking is powerful because it combines two things the law already allows: trusts and QSBS exclusions. But when a strategy becomes too powerful, too popular, and too aggressive, the IRS eventually notices. That is exactly what is happening now.
