Alaska Qualified Subchapter-S Trust for Benefit of Child with Crummy Trust Agreement: Explained In Alaska, a Qualified Subchapter-S Trust for Benefit of Child with Crummy Trust Agreement is a unique and advantageous estate planning tool. This trust arrangement allows individuals to maximize tax benefits while safeguarding assets and providing for their children's future financial needs. Let's delve into the details to understand how this trust operates and the different variations available. What is an Alaska Qualified Subchapter-S Trust? An Alaska Qualified Subchapter-S Trust (SST) is a trust designed to hold stock in a Subchapter S corporation (Sub S Corp). This legal entity allows shareholders to pass income, deductions, and credits through to individual tax returns, avoiding double taxation. An SST qualifies as an eligible S Corp shareholder, preserving the tax benefits. What is a Crummy Trust Agreement? A Crummy Trust Agreement refers to a provision within the trust that offers beneficiaries the right to withdraw a certain amount of contributed funds annually for a limited period, usually 30 days. This withdrawal right is known as "Crummy powers" and serves to qualify the trust contributions as present interest gifts, thus utilizing the annual gift tax exclusion. How Does the Alaska Qualified Subchapter-S Trust for Benefit of Child with Crummy Trust Agreement Work? The Alaska Qualified Subchapter-S Trust for Benefit of Child with Crummy Trust Agreement combines the advantages of both the SST and Crummy trust structures. By establishing this trust, parents can transfer their Sub S Corp stock to the trust for the long-term benefit of their child, while simultaneously taking advantage of gifting techniques to reduce potential estate taxes. In this arrangement, the parents serve as trustees or granters, creating the trust for the designated child's benefit. The trust document outlines the terms and conditions, including when and how much income or principal should be distributed to the child. Beneficiaries of the Alaska SST for Benefit of Child with Crummy Trust Agreement: 1. Minor Child Trust: This type of trust is established for minor children, ensuring their financial security and supporting their upbringing, education, and other needs until they reach a specified age, such as 18, 21, or 25. 2. Special Needs Trust: This trust addresses the unique requirements of children with special needs, protecting their eligibility for government assistance programs while providing supplementary financial support for medical care, therapy, education, and quality of life. 3. Spendthrift Trust: A spendthrift trust grants the trustee complete discretion and control over distributions, safeguarding the beneficiary's assets from potential creditors, irresponsible spending, or mismanagement. Benefits and Considerations of an Alaska SST for Benefit of Child with Crummy Trust Agreement: 1. Tax Benefits: By transferring Sub S Corp stock to the trust, parents can minimize estate taxes while preserving control over the assets during their lifetime. 2. Asset Protection: The trust acts as a shield, protecting the child's inheritance from potential creditors, lawsuits, or divorces. 3. Flexibility: The trust's terms can be customized according to individual preferences, specifying how and when the child will receive income or principal distributions. 4. Education Funding: The trust can be designed to include provisions for funding the child's education, ensuring the necessary financial resources are available when needed. Before establishing an Alaska SST for Benefit of Child with Crummy Trust Agreement, it is crucial to consult with an experienced estate planning attorney or financial advisor. They can assist in tailoring the trust to meet your specific objectives and comply with Alaska's legal requirements.
Alaska Qualified Subchapter-S Trust for Benefit of Child with Crummey Trust Agreement
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Testamentary trusts. This trust type is established by your will. It's an eligible S corporation shareholder for up to two years after the transfer and then must either distribute the stock to an eligible shareholder or qualify as a QSST or ESBT.
Since a revocable trust is not treated as separate from the grantor, it is an eligible S corporation shareholder while the grantor is alive.
However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death.
The benefit of a QSST from a tax perspective is that the income beneficiary is treated as the deemed owner over the portion of the trust that consists of stock in the S corporation. This means that the trust's allocable portion of the S corporation income is reported directly by the beneficiary.
An electing small business trust (ESBT) within the meaning of section 1361(e) is treated as two separate trusts for purposes of chapter 1 of the Internal Revenue Code. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.
The QSST may be useful for estate planning purposes. It may also be useful for holding S stock for the benefit of a minor or incompetent. Individuals, estates, and certain trusts are subject to a net investment income tax, which is an additional tax of 3.8%.
Thus, if a grantor wants to leave S corp stock to a trust for her family members after her death without terminating the company's election, the trust must qualify either as an electing small business trust (ESBT) or as a qualified subchapter s trust (QSST).
A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures.
A Qualified Subchapter S Trust, commonly referred to as a QSST Election, or a Q-Sub election, is a Qualified Subchapter S Subsidiary Election made on behalf of a trust that retains ownership as the shareholder of an S corporation, a corporation in the United States which votes to be taxed.
The main difference between an ESBT and a QSST is that an ESBT may have multiple income beneficiaries, and the trust does not have to distribute all income. Unlike with the QSST, the trustee, rather than the beneficiary, must make the election.