Managing Concentrated Public Stock Positions by Seeding an Exchange-Traded Fund

Brent Sullivan

Research

34 Pages

Brent Sullivan explains wealth managers are increasingly seed new exchange-traded funds (ETFs) under Internal Revenue Code Section 351, allowing clients to reallocate low-basis stock into a diversified, professionally managed fund without immediate gain recognition.

Key Takeaways

Tax deferral tool: Section 351 seeding can convert concentrated stock into ETF exposure while deferring gain recognition.
Scrutiny comes from intent: Risk rises when portfolios look engineered to force diversification rather than reflect durable allocations.
Process beats cleverness: Documentation, mandate fit, and spacing decisions reduce step transaction style challenge risk.
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