Section 1202 and QSBS planning for founders

The work is done before the exit, not after it.

By Chad R. Vickery, Founding Partner. Last reviewed September 2026.

Section 1202 qualified small business stock planning, including non-grantor trust structures, for founders in Maryland, DC, and Washington State. We read the statute closely, watch it as it changes, and build the structure that keeps open the options the Code actually makes available to you.

Request a qualification review Advising a founder?

Most founder planning is late planning.

Section 1202 rewards structure that exists before value accumulates. The planning available to a founder at incorporation, or in the quiet stretch between rounds, narrows considerably once a term sheet is signed, and narrows again once a buyer is at the table. Nothing about that is unfair or unusual. It is how the statute is written, and it is why timing is the first thing we look at.

Incorporation or conversion

The earliest and widest planning window. Entity form, stock issuance, and the original-issue requirement all matter here, and are difficult to revisit later.

A priced round or term sheet

Valuation is about to move. Structures that depend on transferring stock while its value is still low become harder to justify, and more expensive, after the round closes.

Approaching the five-year mark

The holding period is measured per share. Knowing where each tranche sits, and what would restart or preserve the clock, is a documentation exercise worth doing before it matters.

A secondary sale or tender

Partial liquidity raises questions about which shares are sold, what the company's redemption history looks like, and how the remaining position should be held.

A move across state lines

Maryland, DC, and Washington treat income, property, and marital character differently. A relocation in either direction can change what a structure does and what it costs.

Approaching a liquidity event

The narrowest window, but not an empty one. There is usually still work worth doing on documentation, entity hygiene, and the disposition of proceeds.

The honest summary: earlier is wider, later is narrower, and almost never is it too late to do something useful.

What the Code makes available

These are the instruments we work with. Which of them fit, and whether any of them fit at all, depends entirely on your facts: the entity, the stock, the holding period, your state of residence, your marital situation, and what you want the money to do. We tell you which apply to you before you commit to the full engagement, not after.

Section 1202 qualification review

Before anything is designed, we establish whether the stock plausibly qualifies: entity type, original issuance, the active business requirement, the gross-assets ceiling measured immediately after issuance, redemption history, and the holding period on each tranche. Where the answer is unclear or unfavorable, we say so plainly. A qualification problem found early is often fixable. The same problem found at diligence usually is not.
Non-grantor trust planning

Section 1202 applies its exclusion limitation on a per-taxpayer, per-issuer basis. A properly structured and separately administered non-grantor trust is its own taxpayer, which is why these trusts appear in founder planning. They are also heavily conditioned, by the grantor trust rules, by the multiple-trust anti-abuse rule, and by how carefully the trust is actually administered afterward.
SLANT, the spousal lifetime access non-grantor trust

For married founders, a SLANT pursues non-grantor status while keeping a spouse within the class of permissible beneficiaries, addressing the most common objection to irrevocable planning, which is loss of access. It is a demanding instrument, and it is not appropriate for every couple.

How a SLANT works, and when it is the wrong tool
The revocable living trust base

Founder structures sit on top of an ordinary, well-built estate plan: revocable trust, pour-over will, powers of attorney, health care directives, and beneficiary designations that actually match the plan. Advanced structures depend on that foundation, so it is the first thing we check when reviewing a plan built somewhere else.
Marital property characterization

Washington is a community property state. Maryland and DC are not. Whether stock is separate or community property affects who owns it, how it can be transferred, and what a trust can be funded with. State capital gains, income, estate, and inheritance taxes differ across the three jurisdictions, and each is considered when a structure is designed rather than left to be discovered later.
Entity and cap table hygiene

Stock certificates, board consents, 83(b) elections, redemption history, and the company's own records are what a buyer's counsel will examine. Planning that the corporate record does not support is planning that may not survive diligence. We work alongside your corporate counsel rather than around them.

Two regimes, divided by one date

The 2025 amendments to Section 1202 apply to stock acquired after 4 July 2025. Stock acquired on or before that date stays under the older regime. Two founders with similar companies can therefore be governed by different numbers, which is why the acquisition date of each tranche is one of the first things we establish.

Acquired on or before 4 July 2025

The prior regime

Per-issuer exclusion cap: $10M or 10× basis
Issuer gross-assets ceiling: $50M
Holding period: 5 years
Exclusion: 100%at 5 years

All or nothing at the five-year mark. No partial exclusion below it.

Acquired after 4 July 2025

The current regime

Per-issuer exclusion cap: $15M or 10× basis
Issuer gross-assets ceiling: $75M
Holding period: Tiered from 3 years
Exclusion: 50%at 3 years

75%at 4 years

100%at 5 years

The $15M cap is indexed for inflation beginning in 2027.

Figures stated as of September 2026 and drawn from the statute as currently codified. They are the ceilings the Code sets, not a projection of what any particular shareholder may exclude, which depends on whether the stock qualifies at every relevant moment and on the law in force when it is sold.

How trust structuring actually works

Founders hear the phrase "stacking" and usually hear a number attached to it. We would rather explain the mechanism, because the mechanism is what determines whether a structure holds up, and the number is never knowable in advance.

In outline: the exclusion limitation is applied per taxpayer and per issuer, so a trust that is genuinely a separate, non-grantor taxpayer has a limitation of its own. Whether it is genuinely non-grantor turns on the powers retained, the trustee, who may benefit, and how the trust is administered afterward. The stock has to reach the trust in a way that preserves its qualification and its holding period. And multiple trusts are permitted but policed, so genuine differentiation between them is what keeps them separate.

The four points where a structure works or quietly fails

We will not tell you what you will save, and we would be cautious about anyone who does.

The exclusion available under Section 1202 depends on facts that are not yet settled when the planning is done: whether the company qualifies at every relevant moment, whether a sale ever happens, what form it takes, what the law says on that date, and how the IRS views the structure on examination. What we can do is explain what the statute makes available, build the structure carefully, document the reasoning, and keep it maintained so the position is defensible if it is ever questioned.

Four stages, one flat-fee quote before any work begins

You will know the scope and the price before you engage. If the qualification review shows that the planning you came in for is not available to you, we will tell you that at the end of stage one rather than build something anyway.

Qualification and intent

We review the entity, the stock, the holding periods, your state of residence, and what you actually want to accomplish. The output is a plain statement of what is and is not available to you. Typically one to two weeks.
Structure design

We propose a structure, explain the trade-offs including access, irrevocability, cost, administrative burden, examination risk, and the state capital gains, income, estate, and inheritance taxes in play, and confirm your decisions in writing before drafting starts.
Drafting and review

Documents are drafted and then reviewed against the authorities they rely on, against your confirmed intent, and against the corporate record, before they reach you for signature.
Execution, funding, and upkeep

We coordinate signing, prepare the transfer paperwork, process what institutions will accept from us, and track every asset until it is confirmed. A single structure typically runs six to ten weeks to funded; a multi-trust build, ten to sixteen.

How fees work

A flat fee, quoted in writing before any drafting begins. No hourly billing and no open-ended estimate. The number is set after the qualification review, because that is the first point at which an honest one can be given. Once quoted it does not move unless you change the scope.

The qualification review is itself quoted up front, so you are never billed into a decision you have not made.

What you leave with

A written statement of what is, and is not, available on your facts. Executed documents, with the reasoning behind them recorded. A funding schedule tracked asset by asset until each one is confirmed. And a named contact when the statute moves or your company changes.

Timelines are typical rather than promised. They depend on how quickly your company, its custodians, and its transfer agents respond, which is outside the firm's control.

Funding is a shared job, not a handoff

Funding is where most plans quietly fail, and it is not something a law firm can complete alone. Transfers require the owner's signature, and companies, custodians, and transfer agents each impose their own requirements. Our role is to prepare it, process what we can, and track it to completion, so nothing is assumed finished that is not.

The firm prepares and tracks

Drafts the assignments, deeds, transfer forms, and letters of instruction. Deals directly with custodians, transfer agents, and registrars wherever they will accept us. Maintains a funding schedule showing every asset and its status, and gives you written confirmation of what was funded, what was deliberately left out, and why.

You sign and authorize

Sign what only an owner can sign. Provide account numbers, statements, and contacts, because we cannot retitle an asset we do not know exists. Complete the steps institutions accept only from the account holder, which often includes retirement accounts and employer plan designations. And tell us when something changes.

Your company sets its own terms

Transfer restrictions, rights of first refusal, and board or investor consents. Issuing or reissuing certificates and updating the cap table. Custodian and transfer-agent forms, medallion guarantees, and their own timelines. None of this sits within the firm's control, which is why it is tracked rather than assumed.

A trust is funded when the assets are actually in it. Getting there takes all three of us, and knowing that at the start is what keeps it from being discovered at the end.

Knowing the Code is the baseline. Watching it is the job.

Founder planning is not a document you buy once. The statute moves, the regulations and rulings interpreting it move, your company changes, and your family changes. Our commitment is to the work, not to an outcome we cannot control.

We read the primary sources

Positions are grounded in the statute, the regulations, and the rulings and cases that interpret them. The authority a document relies on is recorded, so it can be re-checked when the law shifts rather than rediscovered from scratch.

We monitor changes and tell you what they mean

When Section 1202 or the trust rules around it are amended, we look at what it means for the structures we have built and reach out where a client's position is affected. Not every change requires action. You should still hear about the ones that might.

We document the reasoning, not just the result

A structure that is questioned years later is defended with the contemporaneous record: why it was built this way, what was known at the time, and what the client decided. That record is created as the work is done.

We tell you when the answer is no

Some stock will not qualify. Some structures are not worth their cost or their irrevocability. Some founders are better served by a simpler plan. Saying so is part of keeping you in a defensible position.

Questions founders actually ask

Is it too late if I already have a term sheet?

Usually not, but the available options are narrower and the cost of using them is higher, because transfers are valued at what the stock is worth when they happen. We would rather look at your facts than answer in the abstract. There is often useful work to do on documentation, entity hygiene, and the foundation plan even when the most aggressive structures are off the table.

Can you tell me how much this will save me?

No, and we would treat a confident answer to that question as a warning sign. The benefit available under Section 1202 depends on facts that are unresolved at the time planning is done: whether the company satisfies every requirement at every relevant moment, whether a sale occurs, in what form, at what price, under the law in force on that date, and how the structure is viewed if it is examined.

What we can tell you is what the statute makes available on facts like yours, what the structure would require of you, what it would cost, and where the risk sits.

Does my stock even qualify as QSBS?

That is the first question we answer, and it is not always yes. Qualification turns on the entity's form, whether the stock was acquired at original issue, the nature of the company's business, the company's gross assets immediately after the stock was issued, the company's redemption history, and how long you have held each tranche. Several of those are facts fixed in the past.

The numbers themselves also depend on when you acquired the stock, which is what the two regimes above set out. Where the answer is no, or unclear, you will hear that directly, along with what, if anything, can still be done.

Why does it matter which state I live in?

Because the federal analysis is only part of it. Washington is a community property state. Maryland and DC are not. Maryland also imposes its own estate tax at a threshold well below the federal exemption, and levies an inheritance tax on certain beneficiaries, neither of which the federal exemption addresses. State law affects whether stock is separate or community property, where a trust can be administered, and what a transfer costs at the state level.

State taxes are a design input, not an afterthought. A structure that looks efficient federally can carry a state-level cost that was never weighed. Chad R. Vickery is admitted to practice in all three jurisdictions, which is why we can look at the whole picture rather than the federal half of it.

I have counsel for my company already. How does that work?

Your corporate counsel represents the company. We represent you and your family. Planning that the corporate record does not support may not survive diligence, so we would rather coordinate with them from the beginning on transfer restrictions, board consents, stock certificates, and the cap table than hand everyone a surprise later.

How do your fees work?

Flat fees, quoted in writing before any drafting begins. Not hourly, and not an open-ended estimate. What the work costs depends on which structures actually fit your facts, how many entities and accounts are involved, and how much corporate cleanup the cap table needs, so the number is set after the qualification review rather than before it.

The review itself is quoted up front too, so you are never billed into a decision you have not made. We are happy to talk about the range your situation is likely to fall into on the first call.

Is the Estate Plan Check-Up the right starting point for me?

The Check-Up is a free review of an existing estate plan: what is funded, what is not, and whether the documents still match your situation. It is the right starting point if you already have a plan and want it looked at.

If your question is about founder equity, whether your stock qualifies, whether a non-grantor structure is worth doing, or how long you have before a round closes, start with the qualification review instead. It is the founder-specific entry point and it answers a different question.

Find out whether your stock qualifies

The qualification review establishes what Section 1202 actually makes available on your facts, covering the entity, the stock, the holding periods, and your state, and what acting on it would involve. Quoted as a flat fee before it begins, and the answer is sometimes no.

Schedule a founder call Send a short note instead

Important notice. This page describes planning approaches that may be available under federal and state law as currently in effect. It is general information for educational purposes, not legal or tax advice, and it does not create an attorney-client relationship. Whether any structure described here is appropriate, or permitted, depends on facts specific to you, your company, and your state of residence, and tax law is subject to change, including with retroactive or prospective effect. No outcome, tax treatment, or result is promised or guaranteed. Prior results do not guarantee a similar outcome. Please consult us, or qualified counsel of your choosing, about your particular circumstances before acting.