A Hawaii Irrevocable Trust, also known as a Qualifying Subchapter-S Trust, is a type of trust established under the laws of Hawaii. It is designed to meet the requirements under the Subchapter S election of the U.S. Internal Revenue Code, allowing the trust to be treated as an S corporation for tax purposes. There are several types of Hawaii Irrevocable Trusts which qualify as Subchapter-S Trusts: 1. Granter Retained Income Trust (GRIT): A GRIT is a type of Irrevocable Trust where the granter retains the right to receive income from the trust for a specified period. After the income period ends, the trust assets pass on to the beneficiaries. This type of trust allows the granter to transfer assets to beneficiaries while minimizing estate taxes. 2. Qualified Personnel Residence Trust (PRT): A PRT is created to transfer a primary residence or vacation home to beneficiaries while reducing estate taxes. The granter retains the right to live in the residence for a specified period, after which it passes to the beneficiaries. This type of trust is particularly useful for individuals with significant real estate assets. 3. Dynasty Trust: A Dynasty Trust is designed to provide long-term wealth preservation for multiple generations. It allows the granter to transfer substantial assets to beneficiaries while minimizing estate taxes. The trust's structure allows for the assets to remain in the trust indefinitely, passing from one generation to the next without being subject to estate taxes. 4. Irrevocable Life Insurance Trust (IIT): An IIT is created to own and manage life insurance policies on the granter's life. The trust removes the life insurance proceeds from the granter's estate, preventing them from being subject to estate taxes. This type of trust can be beneficial for individuals with substantial life insurance coverage. 5. Charitable Remainder Trust (CRT): A CRT is established to benefit both a charitable organization and non-charitable beneficiaries. The trust allows the granter to receive income from the trust for a specified period, after which the remaining assets pass to the designated charity. This type of trust provides tax benefits for the granter while supporting charitable causes. It is important to consult with an attorney or financial advisor specialized in estate planning to determine the most suitable type of Hawaii Irrevocable Trust, based on individual circumstances and goals. Establishing a trust requires careful consideration and understanding of relevant state and federal laws to ensure compliance and maximize benefits.
Hawaii Irrevocable Trust which is a Qualifying Subchapter-S Trust
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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.
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.
Irrevocable trusts are often set up as grantor trusts, which simply means that they are not recognized for income tax purposes (all of the income tax attributes of the trust, such as income, loss, gains, etc. is passed on to the grantor of the trust).
As an initial matter, as long as the business owner is living, his or her revocable trust is treated as a grantor trust for income tax purposes, and as such, is an eligible S corporation shareholder.
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.
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).
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.
For example, if a trust is a grantor trust to one individual, it is eligible as an S corporation shareholder, even though it is irrevocable (rather than revocable).
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 two-year limitation for S corporations to have as a shareholder either a testamentary trust or living trust that becomes irrevocable can be avoided by electing to convert the trust to a Qualified Subchapter S Trust, commonly referred to as a QSST.