Tax-free equity method...

QSBS trust stacking is overwhelmingly under talked about.

We’ve been getting into trust & estate law lately — which is, of course, a somewhat oxymoronical statement (we often do the impossible!) In doing so, and asking around, and spending long long nights reading about tax law for no apparent reason despite our own drive to learn (again, weird, we know), we came across QSBS trust stacking.

I’m going to explain this to you and I want everyone in the comments to share how they feel about this. I think, above all else, it’s a beautiful methodology from a T&E lawyer perspective. As you know, we don’t take opinions here at PTT, but if we were to take one we’d probably say something like, “honestly, if you’re crafty enough to come up with this trick, have at it because free markets reward ingenuity and rules exist to be broken, sorry, skirted, wait maybe, tested. We don’t want any T&E lawyers coming after us for saying anything wrong, so we had our lawyer edit this article, and now it’s a bit of a mess.

So here’s how QSBS trust-stacking works.

The IRS allows for an individual, essentially, to liquidate an equity position in a business that has been held for more than five years, for a value less than $15 million (a recent bump from $10 million, caused by OBBA), without facing taxes. You may be thinking, “but the tech billionaires have a lot more to liquidate than $15 million!” Alas, don’t fear, we can ensure that we protect even more of their money.

By creating trusts with trustees in the family: one trust for the founder (a woman, let’s assume), one trust for her husband, one trust for her mother, one trust for her father, one trust for her son, and her daughter, and one final trust because she’s pregnant and they’ve got another on the way. Oh, and also a trust for her childhood best friend. That’s 8 trusts — at $15 million each. She can take $120 million of her equity and split it into those 8 trusts and they can all liquidate the equity tax-free. Nice! Maybe that’s why the guy who founded Telegram is having like a billion kids — very crafty…

Biden was looking to lower the maximum here per trust, to something like $7.5 million, but didn’t end up getting it done. NY state tried to lower it to $10 million for state taxes, but it didn’t go through.

Please share in the comments how you all feel about QSBS (qualified SMALL business stock) trust-stacking.

Thanks for reading & as always, stay curious folks!

(P.S.: if you ever want to learn more, or god forbid, want to get yourself involved in some QSBS trust stacking and save a boatload on taxes, we’ve spoken with one of the top trust lawyers in the country and would love to make an introduction.)

—J&E