QSBS and §1202 planning for founders
The work is done before the exit, not after it.
Section 1202 qualified small business stock planning — including non-grantor trust structures — for founders in Maryland, the District of Columbia, and Washington State. We read the statute closely, watch it as it changes, and build the structure that keeps the options open that the Code actually makes available to you.
Not sure it applies to you yet? The how this works and how long it takes are below, and the qualification review tells you plainly whether there is anything here for you.
Advising a founder rather than planning your own? Here is how we work with CPAs, RIAs, and corporate counsel →
If you read nothing else
- Section 1202 can exclude gain on qualifying stock, up to a per-issuer cap that applies to each taxpayer separately.
- Stock acquired after 4 July 2025 follows new rules: a cap of $15 million or 10 times basis, a $75 million gross assets ceiling, and partial exclusion starting at three years.
- A properly built and administered non-grantor trust is its own taxpayer, which is why trusts appear in founder planning.
- The widest planning window is early: at incorporation and before a priced round.
- We start with a qualification review, tell you plainly what is and is not available, and quote a flat fee in writing.
Before you read further
How this works, and how long it takes
- 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.
- Qualification review
- 1–2 weeks
- Single structure, to funded
- 6–10 weeks
- Multi-trust, to funded
- 10–16 weeks
- Annual administration
- Ongoing
- 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.
- 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. Fees are discussed in the first conversation and fixed in writing before drafting begins — we would rather quote your facts than post a number that turns out not to apply to you.
Most founder planning is late planning.
Section 1202 rewards structure that exists before value accumulates. The planning that is 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 simply 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 toolkit
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 engage, not after.
§1202 qualification review
Before anything is designed, we establish whether the stock plausibly qualifies: entity type, original issuance, the active business requirement, the $75 million 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, the multiple-trust anti-abuse rule, and by how carefully the trust is actually administered afterward. The structure is only as good as the discipline behind it.
SLANT — spousal lifetime access non-grantor trust
For married founders, a SLANT is designed to pursue 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. The tension is real: benefit to a spouse is ordinarily attributed back to the grantor, so the design turns on gating every spousal distribution behind the consent of a genuinely adverse party — who cannot be the beneficiary spouse.
It is a demanding instrument. Drafting, trustee selection, and situs all carry consequences, and it is not appropriate for every couple.
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.
Skipping the base to build the exotic part is the most common defect we see in plans arriving from elsewhere.
Marital property characterization
Washington is a community property state; Maryland and the District 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.
Where it matters, we address characterization directly and in writing rather than assuming it.
State tax treatment is part of the same analysis. State capital gains taxes, state income taxes, and state estate and inheritance taxes differ across the three jurisdictions, and each is considered when a structure is designed — not 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.
Mechanics, not math
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.
The structural idea, in four parts
Each step below is a place where a structure either works or quietly fails. This is a general description of the statutory framework, not advice about your situation.
The limitation is applied per taxpayer, per issuer
Section 1202 caps the gain a taxpayer may exclude with respect to any single issuer's stock — currently the greater of $15 million or ten times basis for stock acquired after 4 July 2025. That cap attaches to the taxpayer holding the stock, not to the company and not to the family — which is the reason a separate, non-grantor taxpayer is relevant at all.
A non-grantor trust is a separate taxpayer — if it is genuinely non-grantor
The grantor trust rules are detailed and unforgiving. Powers and interests retained by the founder, the identity and independence of the trustee, and who may benefit from the trust all bear on whether it is taxed as a separate taxpayer — and how the trust is actually administered afterward bears on whether it is respected as separate at all. Drafting a document that says "non-grantor" does not make it so.
The transferred stock must carry its qualification with it
The trust has to receive qualifying stock in a way that preserves its character and its holding period. How and when the transfer occurs, what the stock is worth at the time, and how the gift is reported are each part of the structure — not paperwork that follows it.
Multiple trusts are permitted, and also policed
Nothing in the Code forbids more than one trust. But the multiple-trust anti-abuse rule reaches trusts with substantially the same grantor and substantially the same primary beneficiaries where a principal purpose of the arrangement is tax avoidance — and treats them as one. Genuine differentiation in beneficiaries, distribution standards, timing, and day-to-day administration is what keeps separate trusts separate. Trusts identical in everything but name invite exactly that argument.
Timing
Two clocks run at once
One is statutory and one is commercial. Founder planning has to respect both, and they rarely run in the same direction.
The statutory clock
- The holding period is measured share by share, not company by company. Different tranches may sit in different places.
- The issuance tests — including the company's gross assets measured immediately after the stock was issued — are fixed at a moment in the past and cannot be improved retroactively.
- Redemptions by the company within defined windows can disqualify stock, including redemptions the founder had nothing to do with.
- The statute changes. Congress has amended §1202 more than once, and amendments have applied prospectively to stock acquired after a stated date. The most recent line is 4 July 2025 — see the two regimes below.
The commercial clock
- Value accretes. Transfers made when the stock is worth less are simpler, cheaper, and use less of a lifetime exemption than the same transfer made later.
- Diligence arrives. Once a buyer's counsel is reviewing the file, the record is what it is. Structures built in the weeks before a closing draw attention.
- Annual exclusion and year-end deadlines are real calendar constraints; gifts either happen in a tax year or they do not.
- Board and investor consents take time. Transfer restrictions in the company's own documents often govern whether a planned transfer is even permitted.
The honest summary: earlier is wider, later is narrower, and almost never is it too late to do something useful.
Two regimes
The 4 July 2025 line
The 2025 amendments to §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.
The prior regime
Unchanged by the 2025 amendments.
- Per-issuer exclusion cap
- $10M or 10× basis
- Issuer gross-assets ceiling
- $50M
- Holding period
- 5 years
All or nothing at the five-year mark — no partial exclusion below it.
The current regime
As amended by the One Big Beautiful Bill Act.
- Per-issuer exclusion cap
- $15M or 10× basis
- Issuer gross-assets ceiling
- $75M
- Holding period
- Tiered from 3 years
The $15M cap and the $75M gross assets ceiling are both 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 we work
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 & 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.
Structure design
We propose a structure, explain the trade-offs — 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 & 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 & upkeep
We coordinate signing, prepare the transfer paperwork, process what institutions will accept from us, and track every asset until it is confirmed. Some steps only you or your company can take — we tell you which, and follow up until the record is complete.
Funding
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.
Prepares, processes, 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.
- Gives you written confirmation of what was funded — and what was deliberately left out, and why.
Sign, authorize, and keep us current
- Sign what only an owner can sign, and authorize us where authorization is possible.
- Provide account numbers, statements, and contacts — 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.
- Tell us when something changes: a new account, a new property, a new round.
Apply their own requirements
- 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.
“A binder on a shelf is not a plan. We provide professional guidance on how to fund the trusts, retitle the assets, and prove it was done, because a structure that was never completed is the one that fails when it is examined.
Our standard
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 — and 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 §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.
Fees
Quoted before the work, not after
Founder engagements are scoped after the qualification review, because that is the first point at which an honest number can be given. Every engagement is quoted as a flat fee, in writing, before any drafting begins.
Advisory & qualification
A structured review of the stock, the entity, and the timing, with a written statement of what planning is and is not available. Some founders stop here, having learned what they needed. It is a complete piece of work in its own right.
Single-structure build
The estate plan foundation plus one irrevocable structure — typically a SLANT or a single non-grantor trust — drafted, executed, and funded, with the reasoning documented.
Multi-trust design
Layered structures with distinct purposes, terms, and administration, coordinated with your corporate and tax advisers, and supported by ongoing annual administration.
Founder work sits on top of a revocable living trust foundation, quoted separately where one is not already in place. Every level is a flat fee fixed in writing after the qualification review, and it does not move unless you change the scope.
For CPAs, RIAs, and corporate counsel
Most founder planning reaches us through an adviser who spotted the issue first: a CPA looking at a cap table, an RIA whose client just took secondary, a corporate lawyer who does not want to take on the estate side. We stay in our lane, your client hears the whole answer including when it is no, and co-counsel is available on multi-trust builds.
How we work with advisors →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 §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.
What is a SLANT, in one paragraph?
A spousal lifetime access non-grantor trust is an irrevocable trust drafted with the intention that it be treated as a separate taxpayer rather than as part of the grantor's own return, while a spouse remains within the class of people who may benefit from it. For married founders, it is an attempt to address the main objection to irrevocable planning — that the money is gone — without defeating the separate-taxpayer treatment that made the structure interesting in the first place, which generally requires that any benefit to the spouse be gated behind the consent of an adverse party. It is demanding to draft and to administer, and it is not right for everyone.
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: the 2025 amendments raised the per-issuer cap to the greater of $15 million or ten times basis and the issuer gross-assets ceiling to $75 million, and introduced a tiered exclusion at three, four and five years — but only for stock acquired after 4 July 2025. Earlier stock keeps the $10 million cap, the $50 million ceiling, and the all-or-nothing five-year rule.
Where the answer is no, or unclear, you will hear that directly — along with what, if anything, can still be done.
I have counsel for my company already. How does that work?
In our experience, 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.
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 the District of Columbia 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. State capital gains taxes, state income taxes, and state estate and inheritance taxes each vary across these jurisdictions, and a structure that looks efficient federally can carry a state-level cost that was never weighed. All four are considered when we design a trust. The firm is licensed in all three jurisdictions, which is why we can look at the whole picture rather than the federal half of it.
What happens after the documents are signed — and what do you need from me?
Funding — the part most plans skip, and the part that needs you in it. We prepare the assignments, deeds, and transfer forms, process what custodians and transfer agents will accept from us, and track each asset on a funding schedule until it is confirmed. But transfers require the owner's signature, some institutions will deal only with the account holder, and your company's own transfer restrictions and consents apply. We tell you exactly which steps are yours and follow up until the record is complete.
You then get written confirmation of what was funded and what was deliberately left out. Irrevocable trusts also need genuine ongoing administration — separate records, real trustee decisions, correct tax filings — and we provide annual administration support for the structures that require it. We do not prepare the returns; your CPA does. A trust that is administered casually is the one that is hardest to defend.
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. Once a fee is quoted it does not move unless you change the scope. We are happy to talk about the range your situation is likely to fall into on the first call.
What is the Estate Plan Check-Up, and is it 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, 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.
Start here
Request a QSBS qualification review
Tell us a little about the company and your shares. We will reply to schedule a review and confirm scope and a flat fee in writing before any work begins.
Send us a short note with the company name, its state of incorporation, roughly when you acquired your shares, and where the company is in its life right now. That is enough for us to tell you whether a review is worth your time.
Please do not include financial account numbers or detailed financial information in a first message. Contacting us does not create an attorney-client relationship, and we cannot act for you until we complete a conflicts check and you sign an engagement letter.
Find out whether your stock qualifies
The qualification review establishes what §1202 actually makes available on your facts — the entity, the stock, the holding periods, your state — and what acting on it would involve. Quoted as a flat fee before it begins, and the answer is sometimes no.
Already have an estate plan and want it reviewed instead? The free Estate Plan Check-Up is the better starting point.