Chapter 1 of 8
What is QSBS and how do Trusts Help?
Chapter Summary
Learn the fundamentals of Qualified Small Business Stock (QSBS) and discover how trusts can help you maximize tax benefits and protect your assets.
Course Progress
Qualified Small Business Stock (QSBS) offers one of the most generous capital-gains exclusions in the Internal Revenue Code. By satisfying a handful of statutory tests, founders and early employees can shield up to 100% of their gain from federal tax. The stakes rose again on July 4 2025, when the One Big Beautiful Bill Act (OBBBA) expanded the asset ceiling and increased the per-taxpayer cap.
Your QSBS Journey in Three Steps
- Qualify the Stock – confirm it meets §1202 requirements.
- Multiply the Exclusion – use non-grantor trusts to stack taxpayer caps.
- Manage the Windfall – retain investment authority while preserving compliance and asset protection.
1. Core Requirements to Qualify
| Requirement | Why It Matters |
|---|---|
| Original Issuance – Stock acquired directly from the corporation | Prevents secondary-market shares from claiming the benefit |
| Domestic C-Corporation | LLC or S-Corp equity never qualifies |
| Asset Test – gross assets ≤ $50 M (pre-OBBBA) or $75 M (post-OBBBA) at issue | Keeps the incentive focused on true small businesses |
| Active Business Use – ≥ 80 % of assets in a qualified trade | Shields only operating businesses, not investment vehicles |
2. 2025 Legislative Updates at a Glance
One Big Beautiful Bill Act (OBBBA) Highlights:
- Effective for stock issued on or after July 4 2025
- Asset ceiling increased $50 M → $75 M
- Per-taxpayer gain cap lifted $10 M → $15 M
- New tiered exclusion: 50 % after 3 yrs, 75 % after 4 yrs, 100 % after 5 yrs
These amendments preserve the five-year holding period for the full exclusion while giving earlier liquidity options for growing companies.
3. Why Trusts Matter: Multiplying the Exclusion
The tax code treats each properly structured non-grantor trust as a separate taxpayer. By gifting QSBS into multiple Nevada-situs, directed trusts, a founder can stack the §1202 exclusion:
| Taxpayer | Individual Cap (pre-2025 stock) | Family-Wide Benefit |
|---|---|---|
| Founder | $10 M | N/A |
| Trust A (Child 1) | $10 M | N/A |
| Trust B (Child 2) | $10 M | N/A |
| Total Excluded Gain | N/A | $30 M |
In Chapter 2 we dissect how the Non-Grantor, Directed trust architecture delivers this multiplier without sacrificing investment authority. Subsequent chapters cover fiduciary roles, tax mechanics under the new law, post-liquidity allocation, beneficiary rights, and long-term governance.
4. Reading Roadmap
| Chapter | Focus |
|---|---|
| 2 – Trust Structure | How the Nevada Non-Grantor, Directed design enables stacking |
| 3 – Fiduciary Roles | Separating investment, distribution, and oversight functions |
| 4 – Tax Mechanics | Integrating OBBBA changes into planning |
| 5 – Maintaining Investment Authority | Governance levers before and after liquidity |
| 6 – Beneficiary & Grantor Rights | Balancing flexibility with protection |
| 7 – Rockefeller Waterfall | Perpetual liquidity & principal preservation strategy |
| 8 – Lifecycle Management | Amendments, situs changes, and eventual wind-down |
Together, these chapters form a practical blueprint to qualify, multiply, and manage QSBS gains, turning a one-time exit into a multi-generational advantage while staying firmly within IRS guidelines.