QSBS stacking trust planning refers to the use of multiple trusts to maximize Qualified Small Business Stock (QSBS) gain exclusions under Section 1202 of the Internal Revenue Code. Currently, the exclusion is $10,000,000 for QSBS issued by corporations formed before July 4, 2025, and $15,000,000 for QSBS issued by corporations formed after July 4, 2025.
When structured properly, separate trusts each qualify for their own QSBS exclusion, increasing the amount of gain excluded from taxation during a business sale or liquidity event.
Because QSBS rules are highly technical and fact-specific, these structures are often explored well before a company sale or IPO occurs. Early planning also allows the founder to gift shares to the trusts when the gift tax value of the stock is still very low, before significant appreciation or a liquidity event drives up the value.
South Dakota DAPT QSBS Planning
A South Dakota DAPT can combine QSBS planning, dynasty trust planning, and long-term asset protection in a single structure. The trust may be designed as a separate non-grantor trust for QSBS purposes, while also preserving the QSBS proceeds in a South Dakota dynasty trust after a future liquidity event. This allows the planning to address multiple objectives at once: potential QSBS exclusion planning, creditor and divorce protection for beneficiaries, professional South Dakota trust administration, and multigenerational wealth transfer.
QSBS Case Study
Alex founded a software company that experienced rapid growth over several years. Rather than waiting until a sale was imminent, Alex addressed the QSBS planning early, long before serious negotiations began for a liquidity event. That timing was critical. By establishing the trusts years before a potential sale, Alex was able to transfer shares when the gift tax value of the stock was still relatively low, rather than waiting until acquisition discussions had significantly increased the company’s value.
Alex established five separate South Dakota DAPT dynasty trusts for family beneficiaries. Each trust was structured as its own taxpayer and funded with QSBS well before the company sale process became advanced. When the company was ultimately sold, each trust claimed its own QSBS exclusion, resulting in a combined $75 million of tax-free capital gains.
Compared to relying on a single exclusion structure, the planning strategy generated approximately $27.8 million in combined federal and state tax savings. The proceeds remained invested inside the South Dakota DAPT dynasty trusts, where long-term projections estimated that the assets could grow to approximately $723 million over twenty years.
Summary
Alex’s early QSBS trust planning allowed him to transfer stock to five separate South Dakota DAPT dynasty trusts years before the liquidity event, when the gift tax value of the stock was still low. When the company was later sold, the trusts claimed a combined $75 million of QSBS exclusions, generating approximately $27.8 million in combined federal and state tax savings. The strategy preserved more of the sale proceeds for future generations while allowing the assets to remain invested inside long-term South Dakota dynasty trusts designed for continued growth, asset protection, and multigenerational wealth transfer.
The right solution often involves more than one type of trust working together.
At Alta, we bring the fiduciary expertise, operational clarity, and a client-first approach to design a solution that truly fits you or your clients’ needs. Let’s make it simple.
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QSBS FAQs
What is QSBS?
Qualified Small Business Stock, often called QSBS, refers to shares that may qualify for favorable capital gains tax treatment under Section 1202 of the Internal Revenue Code.
Why do people explore QSBS trust planning?
QSBS trust planning is often explored by founders, early investors, and families before a business sale, IPO, or other liquidity event. When structured early and correctly, separate nongrantor trusts allow more than one taxpayer to use a separate Qualified Small Business Stock gain exclusion, increasing the amount of future gain that can be excluded from income tax. The planning is highly technical and should be evaluated before a transaction is too advanced, because timing, stock qualification, trust design, beneficiary structure, and anti-abuse rules all matter.
Why are multiple trusts sometimes used?
Multiple trusts are sometimes used because each properly structured trust will be treated as a separate taxpayer for QSBS purposes. If the stock qualifies and the trusts are respected as separate taxpayers, each trust may use its own QSBS gain exclusion. This increases the total amount of gain excluded from income tax.Are QSBS rules complicated?
Yes. QSBS qualification rules are highly technical and fact specific. Eligibility may depend on the type of company, when shares were acquired, how long the stock was held, and whether the company meets the requirements under Section 1202.
When does QSBS planning usually begin?
QSBS planning often begins well before a sale, IPO, or other liquidity event. Waiting until a transaction is already underway can limit the available planning options.
What types of trusts are commonly used in QSBS planning?
South Dakota DAPTs are often used in advanced QSBS planning because they can combine several planning objectives in one structure. A properly designed South Dakota DAPT may be structured as a separate nongrantor trust for QSBS purposes, while also providing long-term dynasty trust planning, creditor and divorce protection for beneficiaries, professional South Dakota trust administration, and multigenerational wealth preservation.
