A Florida Irrevocable Trust, known as a Qualifying Subchapter-S Trust, is a legal entity that provides the benefits of a trust while allowing it to qualify as an S corporation shareholder for tax purposes. This type of trust is specifically designed to meet the requirements of Subchapter S of the Internal Revenue Code. A Florida Irrevocable Trust that qualifies as a Subchapter-S Trust has several key characteristics. Firstly, it is established as an irrevocable trust, which means that once it is created, the trust cannot be altered or terminated by the granter (the person who establishes the trust). This ensures that the assets held in the trust remain separate from the granter's estate. One primary advantage of a Qualifying Subchapter-S Trust is its ability to hold shares in an S corporation. S corporations are a type of business entity that offers pass-through taxation, meaning that the income and losses of the corporation are passed through to the shareholders' personal tax returns, avoiding double taxation. By having an irrevocable trust that qualifies as an S corporation shareholder, the granter can effectively transfer the ownership and tax benefits of the corporation into the trust while maintaining control over the assets. There are various types of Florida Irrevocable Trusts that can be structured as Qualifying Subchapter-S Trusts. Some common examples include: 1. Family Irrevocable Trust: This type of trust is created for the benefit of family members, providing asset protection and tax management advantages. It allows the granter to transfer assets into the trust while maintaining some control over them during their lifetime. 2. Charitable Remainder Trust: This trust allows for the transfer of assets while providing income to non-charitable beneficiaries for a specified term or their lifetime. After the specified term or upon the beneficiaries' death, the remaining assets are distributed to a charitable organization. 3. Special Needs Trust: This trust is designed to manage assets for the benefit of an individual with special needs while preserving their eligibility for government assistance programs like Medicaid or Supplemental Security Income (SSI). 4. Granter Retained Annuity Trust (GREAT): A GREAT is a trust that allows the granter to transfer assets while retaining the right to receive annuity payments from the trust for a set number of years. At the end of the term, the remaining trust assets pass to the beneficiaries, typically family members, with potential estate tax reduction benefits. In summary, a Florida Irrevocable Trust, qualifying as a Subchapter-S Trust, offers a strategic solution for estate planning, asset protection, and tax efficiency. The trust can be customized to meet the unique needs of the granter and their beneficiaries, providing a valuable tool for wealth preservation and management.
Florida Irrevocable Trust which is a Qualifying Subchapter-S Trust
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Three commonly used types of ongoing trusts qualify as S corporation shareholders: grantor trusts, qualified subchapter S trusts (QSSTs) and electing small business trusts (ESBTs).
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.
Net investment income tax of a QSST 1411(a)(2)). The tax also applies to QSSTs to the extent the net investment income is retained in the trust. Although the S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level.
Specifically, S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations (501(c)(3)). Partnerships, corporations, and nonresident aliens cannot qualify as eligible shareholders.
The fundamental problem is that trusts and S corporations do not play well together. Although a trust (including a Living Trust) can be a permitted shareholder in an S corporation, only certain kinds of trusts are so permitted under Section 1361 of the Internal Revenue Code.
An irrevocable grantor trust can own S corporation stock if it meets IRS regulations. The trust must contain language stating that all the ordinary income the trust earns along with the original trust assets are owned by the trust grantor.
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.
Four eligible trust typesGrantor trusts. An important caveat is that these trusts must have one deemed owner who is a U.S. citizen or resident and meet certain other requirements.Testamentary trusts. This trust type is established by your will.QSSTs.ESBTs.19-Nov-2020
A trust may be "qualified" or "non-qualified," according to the IRS. A qualified plan carries certain tax benefits. To be qualified, a trust must be valid under state law and must have identifiable beneficiaries. In addition, the IRA trustee, custodian, or plan administrator must receive a copy of the trust instrument.
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.